ECONOMIC OUTLOOK
CHANCELLOR Philip Hammond revealed a £3bn scheme to reach a target of a million new homes by 2020 in his speech at the Tory conference. The new fund, which contains £1.1bn of new funds added to an existing £2bn housebuilding fund, will be invested in new homes and infrastructure.
His speech sent the Conservatives in a new economic direction, abandoning deficit reduction targets and focusing instead on “targeted infrastructure investment” to boost jobs. However he denied he was abandoning fiscal discipline altogether.
His remarks came after the PM’s speech in which she appeared to signal a move towards a clean break from the European Single Market.
UK manufacturing continues to be boosted by the pound’s weakness since Brexit, with Markit’s purchasing managers’ index (PMI) for September producing its highest reading since June 2014. Markit now expects manufacturing to make a positive contribution to third-quarter economic growth in the UK.
On Tuesday the UK construction industry reported a return to growth in September for the first time in four months. Apparently shrugging off many Brexit-related concerns, the Markit/CIPS UK construction purchasing managers’ index rose to 52.3 in September from 49.2 in August, above the 50 mark that separates contraction from expansion. Economists had been expecting a drop to 49.0.
The upbeat report followed encouraging official data on growth in the services sector. The key economic sector grew by a strongerthan-expected 0.4% between June and July, according to the Office for National Statistics (ONS).
The economy’s estimated growth in the second quarter – the period running up to and including the Brexit vote – was also revised up to 0.7%, from 0.6% previously.
In other positive news, UK consumer confidence has recovered to pre-Brexit levels, according to market researchers GfK. Wages continue to grow faster than prices and low interest rates are an additional incentive to spend, it said.
However, retail sales fell in September, according to the CBI Distributive Trades Index. Sales of clothing and DIY goods were up compared to a year ago but groceries, food and drink were sharply down. Internet sales also slowed.
House price growth also cooled in September, said Nationwide Building Society. House prices edged up just 0.3% between August and September, while the annual rate of growth slowed to 5.3%.
Meanwhile a Bank of England official warned that more monetary stimulus would probably be needed to mitigate the impact of Brexit, despite recent evidence of the economy’s resilience. Minouche Shafik, the BoE’s deputy governor for markets and banking said that extra stimulus was necessary to stop current slow growth from deteriorating.
Her comments came as ratings agency S&P said that Britain will avoid a recession following the Brexit vote but highlighted that slower growth lay ahead.