Q3 GDP growth remained unrevised at 0.4%, but our surveys paint a mixed picture of activity across sectors: manufacturing output is growing strongly, but conditions are tougher in the retail sector.
The ONS’s second estimate of Q3 GDP left growth unrevised at 0.4%, up slightly from 0.3% in Q2, with the expenditure breakdown pointing to a rebound in household consumption in Q3. Business investment disappointed, however, with growth slowing in Q3, while a fall in exports helped to ensure that net trade was a drag on headline growth. Business surveys (both our own and others) suggest that GDP growth has remained steady in Q4, and we expect subdued momentum to persist further ahead.
CPI inflation came in at 3% in October, the highest in five-and-a-half years and unchanged from September. Rising prices of food and recreational goods provided the greatest upward contributions to growth, however they were partially offset by lower fuel and furniture prices. Higher oil prices may start to feed through to fuel prices over the next couple of months which is likely to spur a small pick-up in CPI inflation. However, any further rise is likely to be small and, overall, we believe that inflation is close to its peak.
In the year to October, the CBI’s Distributive Trades Survey (DTS) saw retail sales volumes fall at the fastest pace since March 2009. This chimes with the ONS’ official retail sales figures for October which showed a decline of 0.3% year-on-year with foods stores providing the largest contribution to the fall. While the CBI’s latest quarterly DTS reported that retail sales volumes recovered in the year to November, the quarterly survey overall painted a relatively pessimistic picture. Employment declined in the year to November for the fourth consecutive quarter and headcount is expected to continue to fall, but at a more modest pace. Retailers also once again expect their business situation to deteriorate over the next quarter. Furthermore, retailers hiked their selling prices at the fastest pace since August 1991, with strong inflation set to continue. However, plans for investment in the year ahead remained moderately positive, for the second quarter running.
In contrast to tougher conditions in the retail sector, the CBI’s monthly Industrial Trends Survey reported that manufacturing output growth accelerated in the quarter to November, to broadly match the stronger growth rates seen in July and August. Additionally, both total and export order books hit multi-year highs over the past three months. Total order books were, by a small margin, stronger than at any time since August 1988, while export order books were the strongest since June 1995.
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