Official data showed
that GDP growth picked up slightly in Q2, after a weak Q1which was hit by bad
weather.
According to CBI
surveys, growth is set to be steady but relatively subdued in Q3, consistent
with the CBI’s latest economic
forecast.
Nevertheless, the
outlook remains challenging in retail and services. Much of this is being
driven by the ongoing squeeze on household incomes, with wage growth still
tepid despite elevated skills shortages.
The CBI’s latest Industrial
Trends Survey showed that manufacturing output growth eased slightly in the
three months to August, but remained far above the long-run average. Similarly,
total order books softened but also remain elevated historically, while export
orders books were strong.
However, the
strength in manufacturing contrasts with weaker conditions in other sectors of
the economy. The quarterly Distributive
Trades Survey revealed that retail sales continued to expand in the year to
August, but underlying conditions remain tough. Orders placed on suppliers fell
in the year to August, at a sharper pace than the previous month, while
headcount fell further, marking seven quarters of falling employment.
Additionally, for the second consecutive quarter, retailers expect their
business situation to deteriorate over the next three months and investment
spending for the year ahead is set to fall.
The quarterly Service
Sector Survey painted a relatively subdued picture across the sector.
Business and professional services growth slowed in the three months to August
and while growth recovered in consumer services, it remained muted overall.
Cost pressures across the sector remained strong, which depressed firms’ bottom
lines. Profitability in consumer services fell for the second quarter running,
while profits were flat in business & professional services. With moderate
growth in business volumes expected in the three months ahead, services firms
appear unwilling to invest significantly more in the year ahead.
The latest labour
market statistics continued to show a tight jobs market. The employment
rate remained at a record high, while the unemployment rate fell by 0.2
percentage points to reach a new multi-decade low (of 4%) in the three months
to June. However, nominal regular pay growth (excl. bonuses) remained sluggish,
slipping to a six-month low (of 2.7% on the year) in the three months to June.
Nevertheless,
elevated inflationary pressures mean that real regular pay growth remains weak
and dropped to 0.4% on a year ago (on the less volatile three-month rolling
basis), slipping to a six-month low. This is despite the backdrop of a
tight labour market, illustrated in elevated skills shortages across the CBI’s
surveys. This is particularly true of manufacturing, where those citing labour
shortages as a factor to limit capital expenditure is at a record high.
