The UK recovery is being held back by shortages and rising prices, next week’s numbers could tell us.
The CBI’s quarterly survey is likely to say that order books are very high, but that firms are struggling to meet demand because of difficulties finding parts and some workers. Because of this, business confidence is falling: the survey largely predates the surge in gas prices.
Purchasing managers on Friday are likely to confirm this, reporting that growth in both manufacturing and services has slowed recently because of rising costs and shortages. This problem is not confined to the UK: the same day, purchasing managers will tell a similar story in the eurozone.
It’s not just the industrial economy that’s slowing, however. Although Friday’s official figures could show that retail sales volumes rose a little in September, this would leave them well down on April’s level and over 3 per cent down in the third quarter compared with the second. The post-lockdown unleashing of pent-up savings has been smaller than some expected. With higher energy prices and cuts to Universal Credit now squeezing real incomes, sales might remain weak.
Inflation is also rising. The ONS could say on Wednesday that CPI inflation edged up slightly in September from August’s 3.2 per cent, thanks to food price falls last year dropping out of the data and to higher petrol prices. Inflation will, however, jump next month as energy prices and VAT on hospitality both go up.
In the US, we should see some encouraging news. Both industrial production and housing starts could rise – the latter suggesting that the shortages of materials that held back the sector in the summer are starting to ease. This would be consistent with economists’ forecasts that real GDP will have grown at an annualised rate of over 3 per cent in the third quarter. The Philadelphia Fed’s survey should also report rising output, but also rising prices and less optimism about future conditions.
We’ll also get figures on the UK public finances next week. These could show net borrowing so far this financial year of around £100bn. That would be less than half of last year’s amount and puts the government on target to undershoot the OBR’s forecast of £233.9bn for the year as a whole. This does not matter for bond markets, which aren’t worried about government debt. It does, though, suggest that private net lending (the flipside of government borrowing) is lower than expected.
