This week’s data schedule will be inevitably overshadowed by the first release of UK GDP in the post-referendum period:
The all-important Q3 GDP
Having spent the past four months or so trying to estimate the post-referendum rate of economic growth in the UK, economists are in for a treat on Thursday; the ONS will be releasing its first estimate of Q3 GDP. With the doom and gloom surrounding economic forecasts in the immediate aftermath of the referendum somewhat subsiding, most analysts expect GDP to grow in the range of 0.2 – 0.3%.
This prediction is informed by a string of positive data since the 23rd of June, where strong retail sales figures, a resilient labour market and the return of both services and manufacturing PMIs to expansion territory, point to growing economic output in Q3. Moderate growth in GDP for this quarter will put the economy on course to grow by about 1.9% in 2016, a notch better than most economists expected after the UK voted for Brexit.
What about manufacturing?
The GDP release comes with manufacturing numbers too. The sector saw a spectacular Q2, with output expanding by 1.7%, its highest rate of quarterly growth in six years. Will this performance be replicated in Q3?
No. With some of this growth quick to unwind in July and only slight growth in output in August, -0.9% and +0.2% respectively, it would take a humongous growth rate to take manufacturing output up to even flat growth. In fact, if the July and August production figures remain unrevised then output would need to grow by 3.3%. To put this into perspective, last time this happened was in the last quarter of 1986.
We expect output in September to post growth of around 1%, taking the total for the quarter to between -0.7% and -0.8%. This should mean manufacturing output is still on track to grow by about 0.4% in 2016 as a whole. While commentators are likely to jump on a poor Q3 outturn for manufacturing to shout Brexit, we think this is more likely to reflect an unwinding of a – to be honest – hard to explain super strong Q2.