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5 May 2017 Surveys Signal a Solid Start to Q2, but "Hard" Data Remain Weak (My Publications)

Activity surveys picked up across the board in April, offering hope that the slowdown in GDP growth--to just 0.3% quarter-on-quarter in Q1-- will be just a blip. The headline indicators of surveys from the CBI, European Commission, Lloyds Bank and Markit all improved in April and all exceeded their 2004-to-2016 averages.

5 April 2017 The Construction Sector Will Continue to Tread Water (My Publications)

Evidence that the U.K. economy has slowed significantly this year is starting to come in thick and fast. Following the Markit/CIPS manufacturing PMI on Monday --which signalled that growth in production declined in March to its lowest rate since July--the construction PMI dropped to 52.2 in March, from 52.5 in February.

4 Dec. 2015 How Reliable is the Composite PMI as an Indicator of GDP Growth? (My Publications)

A further rise in the business activity index of the November Markit/CIPS report on services offset declines in the manufacturing and construction surveys' key balances. The composite PMI--a weighted average of three survey's activity indices -- therefore rose, to a level consistent with quarter-on-quarter GDP growth strengthening to 0.6% in the fourth quarter, from 0.5% in Q3. Nonetheless, we do not think this is a convincing signal that the economic recovery is regaining strength.

3 Nov. 2015 Manufacturing Unlikely to be Past the Worst (My Publications)

The sharp and unexpected improvement in the Markit/CIPS manufacturing survey in October released on Monday raised hopes that the recession in the industrial sector might be over. A cool look at the evidence, however, suggests that this probably is just wishful thinking.

5 September 2017 Services PMI set to Show Economy Still Struggling in Q3 (My Publications)

August's Markit/CIPS services survey, released today, likely will show that the economy's biggest sector is continuing to slow. We think that the PMI fell to just 53.0--its lowest level since it plunged immediately after the Brexit vote--from 53.8 in July, below the consensus, 53.5.

6 April 2017 GDP Growth Likely Slowed in Q1, Despite The Rising Services PMI (My Publications)

The rise in Markit/CIPS services PMI to 55.0 in March, from 53.3 in February, brings some relief that GDP growth has not stalled in Q1, following manufacturing and construction surveys that signalled near-stagnation.

02 Mar. 2016 The Manufacturing PMI Shows that the U.K.'s Slowdown is Homegrown (My Publications)

Further compelling signs that the U.K. has lost its status as one of the fastest growing advanced economies were presented by the Markit/CIPS manufacturing survey, released yesterday. The PMI fell in February to 50.8--its lowest level since April 2013--from 52.9 in January.

6 September 2017 August's PMIs Show the Economy is too Brittle to Handle a Rate Hike (My Publications)

Our conviction that the economy continues to grow at a snail's pace increased yesterday following the release of August's Markit/CIPS services survey.

6 January 2017 Are Markets Complacent About the Chances of a 2017 Rate Hike? (My Publications)

Investors have treated the upbeat message of the Markit/CIPS PMIs this week with caution and continue to think that the chance that the MPC will raise interest rates this year is remote. Overnight index swap rates currently are pricing-in just a one-in-four chance of a 25 basis point increase in Bank Rate in 2017.

3 May 2017 April's Higher Manufacturing PMI Won't Be Sustained (My Publications)

The Markit/CIPS manufacturing PMI shot up to a three-year high of 57.3 in April, from 54.2 in March, bringing an end to the run of downbeat news on the economy. The performance of the U.K. manufacturing sector, however, remains underwhelming, given the magnitude of sterling's depreciation.

5 Nov. 2015 More MPC Hawks Likely to Emerge Today, Despite Services Slowdown (My Publications)

The improvement in the Markit/CIPS services PMI in October was pretty limp, supporting our view here that the recovery is shifting into a lower gear. What's more, the poor productivity performance implied by the latest PMIs indicates that wage growth will fuel inflation soon. As a result, the Monetary Policy Committee--MPC--won't be able to wait long next year before raising interest rates. Indeed, we expect the minutes of this month's meeting, released today, to show that one more member of the nine-person MPC has joined Ian McCafferty in voting to hike rates.

1 September. 2016 The Case for a Bounce-Back in the PMIs is Unconvincing (My Publications)

The Markit/CIPS PMIs for August, slated for release over the next three business days, will be closely watched. They have provided the most resounding indication, so far, that Britain is heading for a recession. In July, the composite PMI--comprised of the manufacturing and services indices--fell to 47.5, from 52.4 in June, its biggest month-to-month fall since records began in 1998.

06 October. 2016 Steady Growth in the Services Sector Undermines Rate Cut Case (My Publications)

September's Markit/CIPS services survey added to the evidence indicating that GDP growth softened, rather than fell off a cliff, in the third quarter. The activity index edged down only to 52.6, from 52.9 in August.

2 November. 2016 Producer Price Rises Will Bear Down on Domestic Demand (My Publications)

October's Markit/CIPS manufacturing survey indicates that producers are not shying away from passing on to their customers the higher costs stemming from sterling's depreciation.

2 June 2017 The Manufacturing Sector won't put the Economy Back on Track (My Publications)

The manufacturing sector's recovery has sped up since Q1, according to Markit's latest survey, but growth still looks too weak to prevent the overall economy from struggling again in Q2.

9 February 2017 Weak December Production to Raise Spectre of GDP Revision (My Publications)

Figures due on Friday likely will show that the increase in industrial production in December was much smaller than the 0.6% month-to-month assumed by the ONS in its preliminar y Q4 GDP estimate. We expect a 0.2% rise, which would leave production down 0.1% quarter-on-quarter, rather than up 0.1% as the ONS initially estimated.

25 Apr. Preliminary GDP Data to Confirm Q1 Slowdown (My Publications)

The preliminary estimate of first quarter GDP likely will confirm that the economic recovery lost considerable pace in early 2016. Bedlam in financial markets in January and business fears over the E.U. referendum are partly responsible for the slowdown. The deceleration, however, also reflects tighter fiscal policy, uncompetitive exports, and the economy running into supply-side constraints.

29 August 2017 Is it Time to Turn Positive on the Outlook for Net Foreign Trade? (My Publications)

Britain still has nothing to show for sterling's depreciation, even though nearly two years have passed since markets started to price-in Brexit risk, driving the currency lower.

29 July. 2016 Will Household Saving Rise and Tip the Economy into Recession? (My Publications)

Households' saving decisions will play a key role in determining whether the economy slips into recession over the next year. Indeed, all of the last three recessions coincided with sharp rises in the household saving rate, as our first chart shows. Will households save more in response to greater economic uncertainty?

29 September 2016 What to Look Out for During Friday's Data Deluge (My Publications)

The estimate of services output for the first month of the current quarter usually gets lost among the deluge of national accounts and balance of payments data released for the previous quarter.

25 Feb. 2016 Huge Upside Risk for Durable Orders as Aircraft Sales Rebound (My Publications)

Today's headline durable goods orders number for January is likely to blast through the consensus forecast, +2.7%. We expect a 6.5% jump, comfortably reversing December's 5.0% drop.

28 April 2017 Preliminary GDP Estimate Likely to Reveal Q1 Slowdown (My Publications)

The preliminary estimate of Q1 GDP looks set to show that the economy started 2017 on a weak footing. We share the consensus view that quarter-on-quarter GDP growth slowed to 0.4%, from 0.7% in Q4.

26 May. Second Estimate of Q1 GDP to Highlight Brexit Risk Damage (My Publications)

This morning's second estimate of Q1 GDP likely will restate the preliminary estimate of a 0.4% quarter-on-quarter rise, confirming that the economic recovery has lost momentum since last year. Meanwhile, the new expenditure breakdown is set to show that growth remained extremely dependent on households and will bring more evidence that businesses held back from investing, ostensibly due to Brexit concerns.

26 July 2017 Preliminary GDP to Confirm Growth Remained Sluggish in Q2 (My Publications)

Today's preliminary estimate of GDP likely will show that the economy continued to struggle in response to high inflation, further fiscal austerity and Brexit uncertainty.

3 May 2017 EZ Q1 GDP Growth Likely won't Live up to the Soaring Surveys (My Publications)

Survey data point to a very strong headline, 0.6%-to-0.7% quarter-on-quarter, in today's Q1 advance Eurozone GDP report. But the hard data have been less ebullient than the surveys. A GDP regression using retail sales, industrial production and construction points to a more modest 0.4% increase, implying a slowdown from the upwardly-revised 0.5% gain in Q4.

26 September. 2016 When Will Manufacturing Shake off the Summertime Blues (My Publications)

We're still no nearer to a definitive answer to the question of what went wrong in the manufacturing sector over the summer, when we expected to see things improving on the back of the rebound in activity in the mining sector, rising export orders and an end to the domestic inventory correction. Instead, the August surveys dropped, and September reports so far are, if anything, a bit worse.

26 June 2017 Keep Calm and Carry On Expecting Further Inaction from the MPC (My Publications)

Mark Carney's assertion that "now is not yet the time to raise rates" fell on deaf ears last week. Markets are pricing-in a 20% chance that the MPC will increase Bank Rate at the next meeting on August 3, up from 10% just after the MPC's meeting on June 15, when three members voted to hike rates.

4 May 2017 How to Interpret the Results from Today's Local Elections (My Publications)

Today's local elections are more important than usual, because they will enable investors to assess if the Conservatives really are on track for a landslide victory in the general election, as suggested by the opinion polls and priced-in by the forex market.

8 June. April Production to Underline Poor Prospects for Q2 GDP Growth (My Publications)

April's production data, released today, look set to indicate that the industrial sector's recession--its third in the last eight years--deepened in the second quarter. We think the consensus expectation that industrial production held steady in April is too upbeat. We look for a 0.3% month-to-month drop.

6 February 2017 Growth Indicators Start to Turn Down as Price Pressures Escalate (My Publications)

The run of above-consensus news on the U.K. economy came to an abrupt end last week, as a series of survey indicators for January took a turn for the worse. After six months of breathing space, the economic consequences of the Brexit vote are increasingly being felt.

8 Apr. The Trade Deficit Will Remain Bloated, Despite the Weaker Pound (My Publications)

Net trade has been a major drag on the economy's growth rate in recent quarters, and February's trade figures, released today, are likely to signal another dismal performance in the first quarter.

7 September. 2016 Capex Rebounding in Q3, Except in the Housing Component (My Publications)

If you had asked us in the spring where the action would be in capital spending over the summer, we would have said that the housing component was the best bet. Right now, though, the opposite seems more likely, with housing likely to be the weakest component of capex.

6 Apr. Britain's Happy Period of Strong Growth and Low Inflation is Over (My Publications)

The latest PMIs have added to the weight of evidence that the economic recovery has lost momentum this year. The prevailing view in markets, however, that the Monetary Policy Committee is more likely to cut--rather than raise--interest rates this year continues to look misplaced because inflation pressure is building.

23 September. 2016 How to Read the Split FOMC's Confusing Thought Processes (My Publications)

Over the past few days we have written about the difference between the Fed's tactics--signalling rate hikes and then choosing not to act in the face of weaker data--and its strategy, which is to normalize rates in the expectation that inflation will head to 2% in the medium-term.

4 January 2017 Stronger Surveys Should Not Foster Optimism about Manufacturing (My Publications)

A cluster of surveys suggest that the manufacturing sector finished 2016 with a flourish, after a dismal performance for most of the year. But momentum will drain away from the sector's recovery in 2017, as higher oil prices make low value-added work unprofitable again and resurgent inflation causes domestic consumer demand to crumble.

7 July 2017 Production Likely Jumped in May, but Q2 GDP Still Will b e Soft (My Publications)

Markets likely will be particularly sensitive to May's industrial production and construction output figures, released today, as they will provide a guide to the strength of the preliminary estimate of Q2 GDP, released shortly before the MPC's key meeting on August 3.

8 September 2017 Production Likely Jumped in July, but it Won't Drive a Q3 Revival (My Publications)

The consensus that industrial production increased by just 0.2% month-to-month in July looks too cautious.

8 November. 2016 Weather--not Brexit--is Culpable for Production and Retail Sales Swings (My Publications)

It would be a mistake to conclude much about the economic impact of the Brexit vote from today's official industrial production figures for September, and the British Retail Consortium's figures for retail sales in October.

4 August. 2016 The PMIs Highlight the MPC's Policy Dilemma (My Publications)

The final July PMIs indicate that the post-referendum slump in activity has been even worse than the flash estimates originally implied. The manufacturing PMI was revised down to 48.2, from the 49.1 flash reading, while the services PMI was unrevised at 47.4, its lowest level since March 2009.

10 January 2017 Production Likely Surged in November, but Trend Remains Weak (My Publications)

The consensus expectation that industrial production rose by 1.0% month-to-month in November is far too low; we expect Wednesday's data to show a jump of 2.0% or so. The rebound, however, should not be interpreted as another sign that the economy has been revitalised by the Brexit vote. Instead, we expect the rise chiefly to reflect volatility in oil production and heating energy supply.

08 Jan. 2016 Sterling, Not EM Weakness, Will Hold Exports Back (My Publications)

The Chancellor argued in a speech on Thursday that the U.K.'s economic recovery is threatened by a "dangerous cocktail" of overseas risks, including slowing growth in the BRICs--Brazil, Russia, India, and China--and escalating tensions in the Middle East. Exports are set to struggle this year, but the strong pound, not weakness in emerging markets, will be the main drag.

10 April 2017 Inflation's Rise Likely Arrested in March by this Year's Later Easter (My Publications)

March's consumer price figures, released tomorrow, look set to show that inflation's ascent was kept in check by the later Easter this year compared to last. Nonetheless, CPI inflation will take big upward strides over the coming months, and it likely will exceed 3% by the summer.

07 October. 2016 Don't Mistake Volatility in Production and Trade for Underlying Strength (My Publications)

The consensus view that industrial production rose by a mere 0.1% month-to-month in August looks far too low; we expect today's report to reveal a jump of about 1%.

21 September 2016 Still Little Scope for Optimism on Business Investment (My Publications)

If the economy is to enter recession, falling business investment probably will have to be the main driver. Growth in consumer spending likely will slow sharply over the next year as firms become more cautious about hiring new workers and inflation begins to exceed wage growth again.

03 Mar. 2016 Construction Slowdown is Symptomatic of Wider Malaise (My Publications)

The revival in the construction sector is slowing on all fronts as the fiscal squeeze intensifies, business confidence fades and the recovery in housebuilding loses momentum. These headwinds are likely to ensure that construction output only holds steady this year, thereby contributing to the broader economic slowdown.

04 October. 2016 Manufacturing Revival Bolsters Case for the MPC to Hold Fire (My Publications)

The odds of the MPC cutting interest rates again in November took another knock yesterday after further signs that the manufacturing sector is getting back on its feet quickly.

10 February 2017 Still no Sign of a Sustained Trade Boost From Sterling's Depreciation (My Publications)

Today's trade figures likely will continue to show that the benefits from sterling's depreciation are being outweighed by the costs. Exports still are barely growing, but consumers are about to endure a substantial import price shock. The monthly trade deficit has been extremely volatile over the last year, generating a series of excessively upbeat or gloomy headlines. The truth is that the deficit has been on a slightly deteriorating trend, as our first chart shows. We think the trade deficit likely narrowed to £3.8B in December, from £4.2B in November, bringing it closer to its rolling 12-month average of £3.0B.

07 Jan. 2016 Will Inventories Accentuate the Slowdown? (My Publications)

The rate of inventory-building regularly is a major influence on GDP growth, but often is overlooked by analysts. Much slower inventory accumulation than in 2014 was the key source of downside surprise to the 2015 consensus GDP growth forecast, and we think inventories likely will be a sustained drag on GDP growth this year too.

2 September. 2016 The Manufacturing PMI Overstates the Sector's Recuperation (My Publications)

On the face of it, the rebound in the manufacturing PMI, to 53.3 in August from 48.3 in July, directly challenges our view that the economy is set to slow sharply over the coming quarters. A close look at the survey, however, suggests that the manufacturing PMI exaggerates the extent of the sector's recovery in August.

12 Apr. Do Leading Indicators Signal Impending Recession? (My Publications)

Another day, another downbeat survey. The British Chamber of Commerce's comprehensive and long-running Quarterly Economic Survey was published yesterday, and it added to evidence of a Q1 slowdown.

16 February 2017 Slowdown in Wage Growth Further Reduces 2017 Rate Hike Chances (My Publications)

Yesterday's labour market data delivered a further blow to hopes that consumers' spending will retain enough momentum for the MPC to press ahead and raise interest rates this year. The most striking development is the decline in year-over-year growth in average weekly wages to just 1.9% in December, from 2.9% in November.

2 February 2017 Rising Inflation Expectations to Yield Hawkish Talk from the MPC Today (My Publications)

Expectations are running high that the MPC will strike a more hawkish tone today in the minutes of this month's meeting and in the quarterly Inflation Report. Investors are pricing in a 45% chance of the MPC raising interest rates before the end of 2017, up from 30% before the last Report in November.

13 Apr. Higher Inflation Reflects More Than Just an Easter Boost (My Publications)

CPI inflation picked up to 0.5% in March, from 0.3% in February. The jump was entirely attributable to core inflation, which leapt to 1.5%--its highest rate since October 2014--from 1.2%. With core inflation on track to rise further over the next year, we continue to think that markets will be caught out by interest rate rises later this year.

13 September 2017 Labour Market Report to Show no Easing of the Real Wage Squeeze (My Publications)

Today's labour market report likely will show that employment continued to grow briskly over the summer, but that wage gains still are lagging well behind inflation.

06 Jan. 2016 The Services PMI isn't the Final Word on the Economy's Health (My Publications)

Unanticipated movements in the Markit/CIPS services PMI often provoke big market reactions, despite its shortcomings as an indicator of the pace of growth. We suspect December's PMI, released today, could surprise to the downside, reversing most of its rise in November to 55.9 from 54.9 in October. Regardless, we place more weight on the official data, which is more comprehensive and shows clearly the recovery is slowing.

2 December. 2016 Sterling's Depreciation Has Not Been a Boon for Manufacturers (My Publications)

The deterioration of the Markit/CIPS manufacturing survey in November should temper optimism about the potential benefits of sterling's depreciation. The PMI fell to 53.4 in November, from 54.2 in October.

04 Mar. 2016 Will the MPC Cut Rates to Counteract the Slowdown? (My Publications)

The chances of a cut in official interest rates were boosted yesterday by the sharp fall in the business activity index of the Markit/CIPS report on services in February, to its weakest level since April 2013. Its decline, to just 52.8 from 55.6 in January, mirrored falls in the manufacturing and construction PMIs earlier in the week and pushed the weighted average of the three survey's main balances down to a level consistent with quarter-on-quarter GDP growth of just 0.2% in Q1.

24 May. 2016 EZ PMI Data Suggest that GDP Growth is Slowing Marginally (My Publications)

Eurozone PMI data yesterday presented investors with a confusing message. The composite index fell marginally to 52.9 in May, from 53.0 in April, despite separate data that showed that the composite PMIs rose in both Germany and France. Markit said that weakness outside the core was the key driver, but we have to wait for the final data to see the full story.

4 April 2017 Sterling's Depreciation is a Mixed Blessing for Manufacturers (My Publications)

The latest Markit/CIPS manufacturing survey has dashed hopes that sterling's depreciation and the pickup in global trade will facilitate strong growth in U.K. production this year. The PMI dropped to 54.2 in March, from 54.6 in February.

4 May. The MPC Won't Cut Rates to Alleviate the Manufacturing Slump (My Publications)

The nosedive in the Markit/CIPS manufacturing PMI in April provides an early sign that GDP growth is likely to slow even further in the second quarter. The MPC, however, looks set to keep its powder dry. We continue to think that the next move in interest rates will be up, towards the end of this year.

27 July. 2015 PMIs Point to Stable GDP Growth, but EM Rout is Hurting Germany (My Publications)

The July Eurozone PMI survey echoed the message from consumer sentiment earlier of a mild dip in momentum going into Q3. The composite PMI in the euro area fell to 53.7, from 54.2 in June due mainly to a fall in the services index. Companies' own expectations for future business fell in the core, but the survey was conducted soon after the Greek referendum. Markit claims this didn't depress the data, but we are on alert for revisions to the headline and expectations next week, or a rebound next month.

26 August. 2015 U.S. ISM Will Follow China's PMI, But Not Yet - Services ISM Strong (My Publications)

The decline in China's unofficial PMI, which has dropped to a six-year low, signals increasing troubles ahead for U.S. manufacturers selling into China, and U.S. businesses operating in China. This does not mean, though, that the U.S. ISM will immediately fall as low as the Caixin/Markit China index appears to suggest in the next couple of months. Our first chart shows that in recent years the U.S. manufacturing ISM has tended hugely to outperform China's PMI from late spring to late fall, thanks to flawed seasonals.

25 July. 2016 EZ Sentiment Looks Resilient in the Face of Brexit...For Now (My Publications)

Friday's July PMI reports presented investors with a rather confusing story. The composite PMI in the Eurozone fell trivially to 52.9 in July, from 53.1 in June, despite rising PMIs in Germany and France. The final data on 3 August will give the full story, but Markit noted that private sector growth outside the core slowed to its weakest pace since December 2014.

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