PMI and CBI survey data point to steady growth
Business surveys point to economic momentum having remained steady over the third quarter.
Industrial production rose by 0.2% on the month in August, in line with consensus expectations and broadly similar to growth of 0.3% in July. The main contribution to growth came from a rise of 0.4% in manufacturing (manufacturing accounts for 70% of industrial production).
Construction output rose by 0.6% on the month, the strongest rise since March 2017, though not enough to offset a sharp decline of 1.0% in July. However, the underlying trend in both new work and repair and maintenance remains negative, with overall construction output falling 0.8% on a 3-month on 3-month basis.
Turning to more recent survey data, IHS Markit’s composite PMI stood at 54.1 in September, broadly steady on the previous month (54.0). This reading indicates that the economy remains firmly in expansionary territory. However, there was some variation by sector. Slower activity was reported in the manufacturing sector (56.7 from 55.9 in August), and business activity in construction fell for the first time in over a year (48.1 from 51.1 in August). In contrast, the pace of growth in the services sector edged slightly higher (53.6 from 53.2 in August). There were also widespread reports of higher input costs, driven by rising commodity prices and higher costs for imported items.
September’s PMIs chime with the CBI’s Growth Indicator, which showed stable growth in private sector activity over the three months to September (+11% from +14% in August). The outlook for growth remains strong with firms expecting growth to pick up over the next three months (+18%). Business surveys generally have pointed to firmer economic growth than official GDP data since the start of the year – with little change in both the PMI and our growth indicator in Q3, it remains to be seen whether this discrepancy has persisted into the second half of 2017.
Elsewhere, the Office for National Statistics (ONS) released some large revisions to national accounts data as part of the release of their annual Blue Book. While the UK’s “growth story” was largely unchanged, key changes included an upward revision to the household savings ratio, which is now believed to have been significantly higher than previously estimated (due to the inclusion of new data on household income from dividends). This suggests a little more upside risk to household spending ahead: in the face of an ongoing squeeze on real earnings, consumers may have more scope to reduce savings to finance spending.
However, the UK’s current account deficit is now estimated to be larger, hitting a record low of around 6.0% of GDP in 2016 (compared with 4.4% previously), before narrowing to 4.6% in Q2 2017. A larger current account deficit is a concern to the extent that it leaves the UK economy more vulnerable to a weakening in capital inflows – something that is a growing worry following Brexit.
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