The UK economy has staged a small recovery, next week’s numbers could show.
The Office for National Statistics is likely to say on Friday that GDP rose in December as the national lockdown was lifted. This is likely to leave real GDP a little more than 1 per cent up in the fourth quarter compared with the third. However, output is likely to have fallen back at the start of this year as the lockdown was reimposed. What’s more, real GDP is still likely to be some 6 per cent below its pre-pandemic level. It’ll take a long time for this gap to be made up.
Official eurozone data is likely to show that industrial production was slightly down in December after a big rise in November, leaving it around 3 per cent up in the fourth quarter as a whole and only slightly below its pre-pandemic level. That level was itself lacklustre, however: output actually fell from November 2017 to January 2020, and was then more than 6 per cent below the peak it hit in April 2008. The focus on the pandemic is distracting us from the fact that the region suffered years of stagnation before Covid struck – which is a sign of deep structural problems that haven’t gone away.
Investors should also watch out for latest money stock data from China. Last month, these showed a fall in M1 growth, from 10 to 8.6 per cent – a growth rate well below the log-term average. This matters hugely, as this growth is a lead indicator for Chinese economic growth and hence the performance of commodity prices and mining stocks. Current growth rates point to only weak economic growth and hence to risks for miners. Investors in these need to see M1 growth pick up.
US figures, meanwhile, are likely to show that inflation is quiet. CPI data on Wednesday should show that the headline inflation rate has been stable in the last six months, at around 1.2 per cent, while the core rate (which excludes food and energy) might dip to a six-month low of around 1.4 per cent. With the Fed having promised to leave interest rates near zero until inflation returns above 2 per cent, this points to rates remaining negative in real terms for a long time. This could stoke up speculative bubbles as investors reach for yield: house prices have risen strongly recently, for example. Whether this is a bug or a feature is, however, debatable.
