The UK economy is recovering strongly, next week’s numbers should tell us.
On Thursday, the CBI is likely to report that manufacturing output has risen strongly, and that firms expect it to rise further as they fulfil their strong order books. This picture should be confirmed by purchasing managers on Friday, who could report that near-record highs in the proportions of companies in both manufacturing and services seeing increased output.
A symptom of this upturn is that government borrowing is falling. Wednesday’s figures should show that net borrowing in the first three months of this financial year was around £70bn, compared with £119.4bn in the same period last year. It is, however, far too soon to say whether borrowing for the year as a whole will hit the OBR’s forecast of £233.9bn.
Whether it does so depends upon how far private sector savings fall and investment rises. Next week’s numbers will give us some clues here. The CBI survey should report increased investment intentions. And Friday’s figures will tell us what happened to retail sales in June. These fell in May. If they do so again, it could be a warning that our pent-up savings might not be wholly spent because we have fallen into frugal habits.
Next week’s numbers will also warn us that inflation is rising, with the CBI and purchasing managers reporting price rises. At least some of these, however, should be temporary and will be reversed as companies increase supply and as mismatches between supply and demand ease.
It’s not just the UK that’s enjoying a strong upturn. Purchasing managers on Friday should report that the eurozone is too.
The day before, we’ll see the ECB’s response to the recent rise in inflation. It has said this is only temporary and that it won’t raise interest rates until it is confident of it staying around 2 per cent for some time. Its press conference will be closely watched for any hint of this attitude changing.
Investors should also watch out for Thursday’s report on sales of pre-owned houses in the US. This could show sales falling but prices rising strongly – which is a sign of a lack of supply, but also that higher prices are squeezing out first-time buyers. When the US housing market last deflated, in 2006-07, it triggered the worst financial crisis since the 1930s. Which raises the question: how much better able is the economy to withstand the next downturn in the market?