11 October 2018


CBI surveys point to a pick-up in Q3 growth momentum

Private sector growth appears to have picked up a little in Q3 with warmer weather providing a boost. 

CBI surveys point to a pick-up in Q3 growth momentum

Nevertheless, these effects are likely to be temporary and underlying conditions remain more subdued. Indeed, growth in the manufacturing sector seems to be losing steam, and the recent uptick in inflation underlines the ongoing challenges facing UK consumers.

The CBI’s September growth indicator points a slight uptick in GDP growth over Q3. Stronger momentum has been driven by an improvement in consumer services, retail and manufacturing volumes/output growth. In particular, consumer-facing sectors such as retail have been supported by the warmer summer weather and the World Cup, with the CBI’s retail survey showing the fastest growth in sales since July 2017(on a quarter on quarter basis).

Nevertheless, this uptick is likely to be temporary, and so is expected to unwind towards the end of the year. Indeed, we may be seeing early signs of hitherto strong manufacturing growth starting to unwind. The CBI’s Industrial Trends Survey showed that output growth eased in the three months to September, albeit remaining above the long-run average. Total and export order books also weakened in September, but nevertheless remained noticeably elevated in historical terms. The sector is expected to continue to be supported by firm global growth ahead. Please see the CBI’s economic forecast for more information.

Crucially, underlying consumer fundamentals are also more subdued than data on retail and consumer services suggests. Household incomes remain squeezed, with CPI inflation picking up to 2.7% in the year to August, from 2.5% in July, contrary to consensus expectations of a slight fall. August’s rise in inflation seemed to be driven by volatility in a number of prices, so we still expect inflation to fall back further ahead. Nevertheless, with nominal wage growth remaining weak in the face of sticky inflation, real wage growth is set to remain modest going forward.

Looking further back, the ONS’ latest estimate of Q2 GDP growth was unchanged at 0.4%. The bounce back in growth from a weak Q1 was driven by sectors that were heavily affected by the snow earlier in the year, such as retail and construction. For example, retail posted a strong bounce back in Q2 (2.1%) following a fall of 0.4% in Q1 – separate data indicates that this was driven by food and drink sales due to the warm weather and World Cup celebrations.

However, the expenditure breakdown of GDP growth was less sanguine than the headline figure might suggest. Consumer spending growth remains subdued, business investment fell for the second quarter in a row, and a net trade dragged sharply on growth due to a sharp drop in exports.

For more information please contact Charlotte.Dendy@cbi.org.uk