It’s a statistical extravaganza. This week sees the full gamut of PMIs – all UK sectors; all countries, trade and production data. And, of course, international comparisons of productivity. While the monthly data for the UK will keep the debate on what, if anything, Brexit means for the performance of the UK economy, the latter will inevitably reignite discussion on what can be done about our productivity problem.
Activity levels – manufacturing
So, in more detail. Survey indicators, including the PMIs, firstly tanked in the immediate aftermath of the vote, and then bounced back in August as respondents realised that little in the operating environment for their business has changed – yet.
Decent flash PMIs in Europe and continuing support from the weaker exchange rate should see the manufacturing PMI hold well above the 50, no change mark. The release is also likely to signal on-going pricing pressures from the weaker Sterling. However, any sector breakdowns in the data are worth paying attention to. EEF’s own survey covering 2016q3 signalled some weakness in investment goods sectors, a likely response to caution about businesses investment plans both in the UK and globally.
At the end of the week we get an official read-out on manufacturing production and trade. Output levels dipped by 0.8% in July – more an unwinding of particularly strong growth in the preceding months than any Brexit related contraction. Falls were pretty widespread across the sector, but pharmaceuticals and petroleum products saw the biggest losses in July.
In contrast, last month’s trade data were more upbeat, with a pick-up in sales to the EU more than compensating for the decline in exports to the US and China. It still feels premature to be expecting concrete signs of an exchange rate related surge in exports, but improving demand reported in our survey (& others) should see recent gains maintained.
Activity levels – the rest
Back to the PMIs and looking to services, the fundamentals of a strong labour market, growth in earnings and positive official data for July would also point to a the services PMI at least holding on to its August gains.
Construction, however, seems more of an unknown quantity. Surveys have been painting a rather gloomy picture, but recent revisions to official statistics point to a fairly healthy first half of 2016.
The annual publication of ONS’s international productivity comparison usually prompts a fair amount of hand-wringing and overuse of the phrase – what it takes British workers a week to do, the French can do by Thursday lunchtime…..
Given the official productivity series for the UK has been broadly flat-lining, we don’t expect to see the gap between the UK and G7 narrowing. Let the hand wringing continue.