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Next week's economics: June 21 - 25

Next week will bring more signs of an economic upturn, but perhaps also hints that the pace of growth will slow later this year.
June 17, 2021

Next week will bring more evidence of a strong UK economic bounce-back.

Flash purchasing managers surveys will show both manufacturing and services activity growing strongly, possibly at the fastest rates since the early 1990s. This should be corroborated by the CBI’s survey of manufacturers, which should show strong domestic order books and high output expectations.

Both surveys, though, will also show that companies are reporting increased prices of both input and outputs.

Also, the CBI’s survey of retailers could show that sales in early June were only around average for the time of year. This suggests that the post-lockdown surge in sales is petering out – which might imply that the households who built up savings during the lockdown are happy to hang onto them.

The eurozone is also enjoying a strong upturn. Purchasing managers there will report strong growth, and the National Bank of Belgium’s survey could show that business confidence is at its highest level since 2006.

There will, though, be a note of caution in the ECB’s money stock data. These could show that annual growth in the M1 measure has slowed recently, from over 16 per cent to around 12 per cent. This matters, as this growth has been a nice leading indicator of output growth. Its slowdown is therefore hinting at a slower pace of growth by year-end – though not yet so great a slowdown as to trouble us yet.

In the US, we could see that sales of both new and existing homes have levelled off in recent months. This is not necessarily a sign that the red-hot housing market is cooling off. Instead, it reflects a lack of supply – something which will be partly rectified in coming months: traditionally, housebuilding in the US has been more responsive to price rises than is the case in the UK.

We’ll see what the Bank of England makes of the economy when the MPC reports on Thursday. It has recently been saying that it won’t raise rates until there is “clear evidence” that it will hit the 2 per cent inflation target “sustainably”. Given the signs of rising inflation, it might retract this to give itself room to raise rates a little later this year as a precautionary measure.