ECONOMIC OUTLOOK
INFLATION remained at a fiveyear high of 3% on Tuesday as the ONS released its latest data. It said sterling’s weakness plus rising food prices were the main factors keeping inflation so high. A fall in the price of fuel helped keep a lid on upwards price pressure.
Lower fuel, crude oil and petrol prices have helped cut input costs for companies. This is seen as an early indicator of inflation trends as it helps set the costs of goods emerging from manufacturers. It means inflation may well have peaked and could start edging down in the coming months.
The UK’s industrial sector ended the third quarter on a strong note, with output rising for a fourth successive month in September. Production rose 2.5%, the strongest year-on-year figure since February. Output increased 0.7% on a monthly basis, and 1.1% over the third quarter as a whole.
Meanwhile the UK’s trade deficit narrowed in September compared with August, driven by an increase in goods exports. The trade gap contracted by £700m to £2.75bn, according to the ONS. But despite the monthly improvement, the deficit still expanded over the third quarter overall.
The European Commission cut growth forecasts for the UK to just 1.5% this year, down from the 1.8% it forecast in May. Growth will slow to 1.3% in 2018 and 1.1% in 2019, it forecasts – gloomier predictions than the 1.7% in both years forecast by the Bank of England.
In-store retail sales of non-food items fell by their biggest monthly margin in five years in October, according to the British Retail Consortium (BRC). Online sales were also disappointing, rising at half the pace of the three-month and 12 month averages.
The data suggests consumers are feeling the squeeze from rising inflation and falling real wages, and are cutting back on nonessential purchases. One in five shoppers said they would also look to save money on food shopping on the next 12 months as inflation pushed up prices.
There was mixed news on the housing market. The Halifax said that house prices rose by more than expected in October – up 0.3% over the month, with values 4.5% higher than a year ago.
Prices were supported by limited supply, it said. However, with the squeeze on household incomes expected to get worse, the lender said it expected prices to remain essentially flat over the coming 12 months.
Some experts cast doubts on the data given that other surveys have shown more market weakness over recent months.
The Royal Institution of Chartered Surveyors reported that most UK regions had flat or falling volumes of property sales in October. Nationally, agreed sales fell 20% compared to September. Inquiries from buyers also fell by 20% compared to the previous month as worries about the economy and wages took hold. In London, 63% more surveyors reported falling prices than rising prices, the worst reading since the height of the financial crisis in 2009.