1 March 2018


CBI surveys point to firmer growth, but mixed picture across sectors

The ONS revised down Q4 2017 GDP growth slightly, with the breakdown revealing that growth over the quarter was based on shaky foundations. Meanwhile, the CBI’s February surveys were somewhat of a mixed bag: while growth in manufacturing remained solid and the services sector saw a pick-up in volumes, sales growth slowed further in the retail sector.

CBI surveys point to firmer growth, but mixed picture across sectors

UK GDP growth in Q4 2017 was revised down to 0.4%, from the initial estimate of 0.5%, in line with our January nowcast. However, the expenditure breakdown wasn’t especially encouraging, showing that growth was mostly driven by net acquisitions of valuables and general government investment, which are generally volatile components. Growth in household spending remained muted, at just 0.3% on the quarter (but nonetheless adding +0.2ppts to growth), highlighting the ongoing squeeze on households’ real incomes. Business investment was flat on the quarter, marking the first time it hasn’t grown in a year, while net trade dragged on growth for the second quarter running (-0.5%).

Employment rose solidly in the three months to December 2017, by 88,000 (to 32.1 million). However, the three months to December also saw the biggest rise in unemployment in five years (up 46,000 on the quarter, to 1.47 million). The rise in unemployment was related in part falling inactivity, as more people joined the economically active population: those registered as economically inactive (not available and/or looking for work) decreased by 109,000 compared with the previous quarter, marking the second rolling quarter of decline and the sharpest drop in over two years.

There were also some signs of a recovery in wage growth, with nominal regular pay (excluding bonuses) growing by 2.5% on the year in the three months to December 2017, up marginally (by 0.2% pts) on November and the highest in a year. However, with CPI inflation still elevated, real wages (excluding bonuses) fell for the eleventh consecutive month. Nevertheless, the decline was also the smallest in eleven months.

The CBI’s business surveys over February were a bit of a mixed bag. Our latest Service Sector Survey revealed that volumes growth picked up in both consumer and business & professional services. Stronger volumes growth paired with slower costs growth paved the way for a recovery in profitability in both sub-sectors. However, investment intentions for the year ahead were skewed towards IT, with spending in other areas set to be cut back or left unchanged.

In contrast to the strength in consumer services, the February Distributive Trades Survey painted a softer picture of the retail sector. Retail sales grew at a subdued pace in the year to February, marking the third consecutive month of slower growth and highlighting the impact on the sector from weaker household spending. However, investment intentions for the year ahead improved, and are now at their strongest since August 2015.

Meanwhile, manufacturing growth remained firm in the three months to February, according to the CBI’s Industrial Trends Survey. Total and export order books also remained far above the negative long-run average, albeit softening from the multi-decade highs seen in recent months. Over the next quarter, growth in manufacturing output is expected to ease, but nonetheless remain solid.

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