ECONOMIC OUTLOOK
UK manufacturing picked up in July thanks to the weaker pound and growth in new orders which hit its strongest level in seven years, it was revealed on Tuesday morning.
However, while the rise in the manufacturing purchasing managers’ index to 54.5 from 54.2 looks promising, some economists pointing to the fact that stocks of finished goods accumulated for the third month in a row, suggesting that the sector’s contribution to growth will be more muted than expected, or at least delayed.
UK economic growth was disappointing in the second quarter, according to the Office for National Statistics (ONS).
GDP grew 0.3%, up only slightly from the tepid growth of 0.2% in first quarter.
The ONS said expansion was driven largely by the services sector, specifically retail and film production. However, other sectors such as construction and manufacturing both fell quite sharply. Because of their smaller size, however, the contraction in these sectors did not offset the growth in services.
It added that employment reached a high of 74.9% during the period, but real wages fell by 0.7% compared to 12 months earlier.
The news was in line with most economists’ expectations and will give the dovish members of the monetary policy committee more ammunition in their arguments to keep interest rates unchanged or risk slowing the economy further.
On a more upbeat note, another survey showed that British retailers are having a great summer. The CBI’s Distributive Trades survey found that 48% of retailers said that volumes in July were up on a year ago, compared to 26% who said sales were down. That positive balance of 22% is a big increase on the 12% positive balance in June. And retailers expect the trend to continue into August, with 40% expecting sales to increase compared to 20% expected a decrease.
More evidence of a slowdown in the property market: property company Savills conducted research which compared the market today with that just before the financial crisis hit in 2007. It showed that the market is still recovering and in many ways is still operating at below 2007 levels. For example, it said there was a “dramatic slump” in spending, since £312billion was spent on house purchases in the year to March 2017, some £30billion less than the figure in 2007.
In the US, the Federal Reserve kept interest rates unchanged but indicated it would begin paring back its asset-purchasing programme, instigated during the financial crisis, possibly from the date of its next meeting. The announcement is a vote of confidence in the US economy despite below-target inflation. The news essentially kills any prospect of another US rate hike later this year and the dollar dropped on the news.