Next week will bring more evidence of the economic damage done by the pandemic, but also a few reasons for hope.
Official figures on Tuesday are likely to show another increase in unemployment, to around 5.3 per cent of the workforce – the highest rate since 2015. In addition, there are almost 2m outside the labour force who want a job, and even those in work are seeing a drop in hours.
This drop in demand for labour reflects a fall in demand for goods and services. Official figures will show that while retail sales volumes were little changed in February, they were down by around 5.5 per cent year on year. The CBI is likely to report that the decline continued in March. Purchasing managers’ surveys are likely to report that the services sector in general shrank again in March. And the CBI will report that manufacturers export and domestic order books are both weak, and that companies expect output to stagnate in coming months.
One effect of this weakness is that inflation is being squeezed. Wednesday’s figures are likely to show it stuck around 0.7 per cent. This rate will, however, increase soon simply because last spring’s drop in petrol prices will fall out of the annual data. We might see producer price inflation edge up next week, thanks to recent increases in raw materials prices – although this is still close to zero.
We will, however, also get some brighter news from the eurozone. The National Bank of Belgium might report that business confidence has risen to its highest since the pandemic started: this matters as this has been well correlated with output growth in the eurozone as a whole. Better still, the ECB could report that the M1 measure of the money stock is accelerating, growing by around 17 per cent year on year. Historically, this has been a great lead indicator of output growth in the region. In fact, we might see the first signs of this link continuing to hold: purchasing managers could report that manufacturing is now expanding. All this is good for the UK, as increased demand from the eurozone should mitigate some of the near-term damage done by Brexit.
In the US we should see another rise in durable goods orders, consistent with the economy growing nicely, and an annual rise of around 20 per cent in sales of new homes. This is evidence that cheap money is fuelling a housing boom.
