We’ll see early signs next week of how the latest lockdown is hitting the UK economy.
Flash purchasing managers’ surveys are likely to show that both manufacturing and services activity are now shrinking. And the CBI’s survey of manufacturers could show that output expectations and business confidence are both low. It might also show weak investment intentions, as the benefit of reduced Brexit uncertainty is outweighed by ongoing uncertainty about the pandemic and increased spare capacity.
Other numbers on Friday could show that the lockdown has depressed consumer confidence. This, though, might not be too alarming. Although households are very pessimistic abut the general economy, many of them are more optimistic about their personal situation – and as they should know more about that than the macroeconomy, this is actually encouraging.
Official figures on Friday should be consistent with this. They should show that retail sales volumes rose in December, possibly to a record high, to stand a whopping seven per cent up on a year ago. This, however, is due in part to us switching away from non-retail consumption – for example by eating and drinking at home rather than in pubs and restaurants.
Partly because of this, inflation is still low. Wednesday’s numbers could show that CPI inflation remained around last month’s 0.3 per cent: there’s uncertainty around this, however, as the pandemic has changed the seasonal patterns of price moves. And producer price figures the same day should show that output and input prices are both still lower than a year ago.
We’ll see a striking symptom of our weak economy in Friday’s public finance numbers. These could show that the government borrowed around £260bn in the April-December period – equivalent to almost 20 per cent of GDP, a peacetime record. In itself, this is no problem: borrowing costs are still near record-lows. But it does pose the risk that the government might tighten policy too soon.
Overseas, the main news will be in purchasing managers’ surveys for the euro area, which could show that private sector activity in the region is shrinking slightly.
This bad news should however be mitigated by two lead indicators for the world economy. In Germany the ZEW survey should show that finance professionals’ optimism is above average. And in the US the Philadelphia Fed should report that output expectations in its region are also quite high.
Watch out too for US capital flows numbers on Tuesday, which could show record foreign buying of US equities in recent months. In the past, such buying has led to falls in global stock markets, because it’s a sign that investors’ sentiment is too high. This relationship might, however, have now broken down.