The week had started so well. The latest PMI Markit updates on construction, manufacturing and services suggested strong growth continued into the second quarter. Overall numbers indicated a continuation of 2% growth, experienced in the first quarter, may well have continued into the first half of the year.
The latest NIESR flash estimate suggested U.K. growth of around 1.8% in the period April to June. Output appeared to be quite strong, despite the fears for investment and household spending,
Then came the latest ONS data on manufacturing and construction. Manufacturing output increased by just 0.4% in May, following growth of over 2.5% in the first quarter. Construction output fell by 1.2% in the month, driven lower by the weakness of public sector spending and infrastructure spending particularly.
So much for the "March of the Makers, Rebuilding the Workshop of the World". Manufacturing output remains some 5% below the pre recession peak. The rebalancing agenda took a further hit with weak trade figures demonstrating the structural deficit trade in goods persists, no matter the vagaries of Sterling. Car sales fell by almost 5% in June. The year on year growth is down by 1.3% year to date. We now expect total registrations in 2017 to fall compared to prior year for the first time since 2011.
So should we worry about growth this year? A little. We expect manufacturing growth to be up by just 1.4% this year, no real change in the latest data. Construction information is subject to revision. The trend of weak public sector spending on housing and infrastructure continues. Strong private sector growth in housing and commercial real estate will continue. Our forecasts on the trade deficit for the year are little changed by the latest ONS update. We expect the deficit trade in goods to be over £140 billion this year. Growth estimates range from 1.3% to 2.1% according to our database. For the moment we remain in the top end of the range.
CBI makes the transition call on trade ...
Concerns about trade prompted the CBI to make the transition call on Brexit this week. A plea to remain within the Free Area and the Customs Union, the clarion call from Carolyn Fairbairn the Director General, in a presentation at the LSE.
Stay in Single Market and a Customs Union until final EU deal in force, the general idea, or as long as possible, the implication. The UK needs a "bridge to a new deal" to reduce uncertainty and protect jobs during the transition period between the completion of Article 50 negotiations and a new trade deal. The proposal would "maximise continuity for firms and avoiding a damaging cliff-edge. Crucially, it would mean that firms would only need to make one transition" but to what?
The "bridge to a new deal" was a "bridge too far" for David Davis and the hard line Brexiteers. The political risk of perception of weakness will hold sway. No "bridge to a new deal" just dig and ditch and jump!
The CBI may seek “the most ambitious and comprehensive free trade deal ever agreed in history. “A deal which makes sure bakers in Northern Ireland can sell their bread to Dublin without delay and barriers. A deal where car manufacturers can continue to bring in parts from all over the EU without red tape. A deal where cosmetics firms can work under one set of standards across Europe."
Alas this is not to be. Inside the Single Market and the Customs Union, with limitations on free movement of labour and the ability to negotiate free trade deals with the rest of the world is a contradiction in stance. It's not just having your cake and eating it, it's asking the EU to cut up the slices into mouth size bites with extra jam and cream.
The CBI wants to remain inside the Single Market and the Customs Union for as long as possible. The organization knows the big industries at risk are Motor, Aerospace, Big Pharma and Financial Services. Now we must add loaves and lipstick! The shock to manufacturing investment and output of Brexit will be significant and inescapable. Investment decisions are looming within a two year horizon. ... The CBI bridge to a new deal is just a fragile extension to a crumbling edifice of syndicated European manufacturing based in the U.K.
West Wing WTF ... Trump Meets Putin ...
Trump met Putin this week on a trip to Europe. Remarkably the President stuck largely to script. Autocue ensured commitment to NATO and Article 5 featured this time.
Trump spoke of the challenge to Western Civilization but appeared to be unsure of whence the major threat would come. It is probably coming from The White House after all. Not too difficult to overlook perhaps?
The U.S. persisted in teasing the G20 about trade and climate change. The major concession from the Putin was a guarantee the Kremlin had not been involved in Presidential election manipulation in 2017. Concerns about Crimea, the Ukraine and Syria took second place as Trump prioritized his own buffer state. Putin gave the assurance the Kremlin had not been involved but was unable to speak for the 105 million Russians with access to the internet. Putin is clearly a man of his word but with a substantial vocabulary. Double speak is part of the KGB training after all.
Theresa May was assured by Trump a U.S. trade deal would be a priority. President Xi held out hopes for a trade deal as long as Hong Kong didn't feature in the talks. Yes a new world awaits out there for global Britain. The world will eat Ulster bread and EU cake if the CBI has it's way ...
That's all for this week from The West Wing, Whisky, Tango, Foxtrot ... You can check out the series of blog posts here or leave any comments or LIKES on the Facebook page here ...
The week in markets ...
Markets rallied, bond yields increased. Sterling fell against the Euro and the Pound. Gold fell and oil prices were up ... central banks are moving slowly in the UK and Europe as the Fed sets the pace. The end of QE will threaten bond prices in the months ahead ...
That's all for this week. Have a great week-end ... Don't Miss the Economics Conference on the 13th October. Our theme is the Economics of Greater Manchester. We will be talking about the Inclusive Growth Challenge, Balancing the Books and the Sectors Driving Growth in the City Region! Another Great Conference in the pro-manchester series ... Book Now Don't Miss Out ...
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The material is based upon information which we consider to be reliable but we do not represent that it is accurate or complete and it should not be relied upon as such. We accept no liability for errors, or omissions of opinion or fact. In particular, no reliance should be placed on the comments on trends in financial markets. The presentation should not be construed as the giving of investment advice.