CBI surveys point to a pick-up in Q3 growth momentum
Private sector growth appears to have picked up a little in Q3 with warmer weather providing a boost.
Nevertheless, these effects are likely to be temporary and underlying conditions remain more subdued. Indeed, growth in the manufacturing sector seems to be losing steam, and the recent uptick in inflation underlines the ongoing challenges facing UK consumers.
The CBI’s September growth indicator points towards a slight uptick in GDP growth over Q3. Stronger momentum has been driven by an improvement in consumer services, retail and manufacturing volumes and output growth. Consumer facing sectors such as retail have been supported by the warmer summer weather and the World Cup, with the CBI’s retail survey showing the fastest growth in sales since July 2017(on a quarter by quarter basis).
Nevertheless, this uptick is likely to be temporary, and is expected to unwind towards the end of the year. The CBI’s Industrial Trends Survey showed that output growth eased in the three months to September, albeit remaining above the long-run average. Total and export order books also weakened in September but remained noticeably elevated in historical terms. The manufacturing sector is expected to continue to be supported by firm global growth ahead.
Crucially, underlying consumer fundamentals are also more subdued than data on retail and consumer services suggests. Household incomes remain squeezed, with CPI inflation picking up to 2.7% in the year to August, from 2.5% in July, contrary to consensus expectations of a slight fall. August’s rise in inflation seemed to be driven by volatility in the price of a number of items, so we still expect inflation to fall back further ahead. However, with nominal wage growth remaining weak in the face of sticky inflation, real wage growth is set to remain modest going forward.
For more information please see the CBI’s economic forecast or contact Charlotte.Dendy@cbi.org.uk