There wasn’t much cheer in this week’s economic data. Industrial production fell by 0.5% for the month of August, led by a 1.1% drop in manufacturing output. The value of exports fell by 2.4%. This news followed a series of lacklustre surveys tracking activity in September. There was one bright spot; according to the British Retail Consortium, like-for-like retail sales rose by 1.5% year-on-year.
What the commentators said
The extra holiday in June has skewed recent data, said Capital Economics. But the last month that was unaffected by Jubilee distortions was May and by August both industrial production and exports were lower than they were three months earlier. So the underlying trend in these areas is down.
All the activity surveys for the third quarter, including gauges of manufacturing and services, were pretty discouraging. The third quarter may be set for a rise in GDP, bouncing back from the one-off hit to output in the previous three months, thanks to the extra holiday. But “underlying output seems to be stagnating or falling slightly”.
“Welcome to the New Normal,” said Allister Heath in City AM. “With the private sector deleveraging, government spending still gargantuan and all of the other crippling woes still holding back the UK, the best one can expect is weak growth.” Expect plenty more mixed survey evidence against a backdrop of “quasi-stagnation”.
Lacklustre growth has put the government’s deficit reduction plan back in the spotlight. As FxPro.com pointed out, figures from the International Monetary Fund show that we will be borrowing more than Greece this year: 8.2% of GDP, compared to 7.5%. And our deficit will be bigger than theirs next year too.
The way things are going, debt won’t start to fall until two years after the government’s target of 2015-2016, said Chris Giles in the FT. As the chancellor’s autumn statement approaches, calls for a ‘Plan B’ are set to grow louder.