Guide to the week ahead for the UK economy
The week ahead for the UK economy beginning on Monday 30th January will be dominated by the first purchasing managers’ surveys for the year, covering January’s economic activity in the manufacturing, construction and services sector.
The data is released on the back of GDP falling by 0.2 per cent in the final quarter of 2011, according to official figures out last week by the Office for National Statistics (ONS). This week’s figures will provide the first indication of activity levels and trends in the UK economy for 2012 and provide an early sign of whether the economy is continuing to shrink and the likelihood of whether the UK is about to enter a double-dip recession.
Other important economic data out in the coming week will be the consumer confidence index for January and mortgage approvals data for December and house prices for January.
Howard Archer, Chief UK & European Economist from forecasters HIS Global Insight gives his views on the key indicators out this week.
Consumer Confidence in January
The GfK/NOP consumer confidence index (out overnight Monday/Tuesday) is forecast to show that sentiment rose marginally in January after falling to a 34-month low in December.
We expect consumer confidence may have received a small lift in January from retreating inflation and news that utility bills will be trimmed in February.
Mortgage Approvals in December and House Prices in January
The Bank of England is expected to report on Tuesday that mortgage approvals for house purchases rose modestly further to a two-year high of 54,000 in December from 52,854 in November. Mortgage approvals continue to be substantially below the average monthly level around 88,000 seen since 1993, while a level of 70,000-80,000 has in the past been considered consistent with stable house prices.
The Bank of England is also forecast to report that net mortgage lending amounted to £0.8 billion in December. While this would be up modestly from £0.6 billion in November, it would again still be very low compared to long-term norms.
Meanwhile, the Nationwide is expected to report during the week that house prices fell 0.2 per cent month-on-month in January, as they did in December. However, this would still leave house prices up by 1.2 per cent year-on-year in January.
We expect house prices to fall by five per cent in 2012. And we believe that there are serious downside risks to this forecast.
Consumer Credit in December
The Bank of England is also expected to report on Tuesday that unsecured consumer credit rose by £400 million in December. This would be similar to November’s outturn of £394 million, which was up from a nine-month low of just £53 million in October.
The recent limited rise in unsecured consumer credit suggests that some people had to borrow to help finance their spending for Christmas as a consequence of the extended squeeze on their purchasing power coming from elevated inflation, low wage growth and tighter fiscal policy.
Even so, unsecured consumer credit remains extremely low compared to past levels and the indications are that consumer appetite for new taking on new borrowing remains low while there is also a strong desire of many consumers to reduce their debt.
Manufacturing Purchasing Managers Survey for January
The manufacturing purchasing managers' survey (PMI - out on Thursday) is expected to show that overall activity in the sector contracted at a reduced rate in January.
Specifically, we forecast the PMI to have edged up to a four-month high of 49.8 in January from 49.6 in December and 47.7 in both November and October (which was the lowest level since June 2009).
Nevertheless, it is evident that manufacturers are facing a hugely challenging environment early in 2012.
Construction Purchasing Managers Survey for January
We forecast the construction purchasing managers index (PMI - out on Thursday) to have eased back to 52.5 in January from 53.2 in December. This would be modestly below the fourth quarter 2011 average of 53.2 but still above the 50.0 level that is taken to indicate flat activity.
However, while the PMI average of 53.2 in the fourth quarter indicates clear overall expansion in the construction sector, the preliminary national accounts data indicate that construction output contracted 0.5 per cent quarter-on-quarter as GDP fell 0.2 per cent.
So there is conflicting evidence as to whether the construction sector is currently growing modestly or contracting modestly. What is evident though is that the sector currently faces an extremely challenging environment, which threatens to seriously limit activity over the coming months. In particular, the government's public spending cuts are limiting overall expenditure on public buildings, schools and hospitals.
There is some good news for the construction sector as it stands to benefit from the government’s measures to boost infrastructure that were outlined in last November’s Autumn Statement.
Service Sector Purchasing Managers Survey for January
The performance of the dominant service sector is absolutely critical to hopes that the UK economy can return to growth in the first quarter of 2012.
The business activity index of the service sector purchasing managers' survey (out on Friday) is expected to indicate that the sector is growing but only modestly. Specifically, we forecast the business activity index to have retreated to 52.7 in January after spiking up to a five-month high of 54.0 in December from 52.1 in November.
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