Preview of UK Economic Releases for the Week of 11 June
A light week for economic releases is likely to show that manufacturing output edged up in April, while exports were limited by weakened Eurozone economic activity.
RICS Housing Market Survey for May
Of key interest in the housing market survey from the Royal Institution of Chartered Surveyors (RICS; out overnight Monday/Tuesday) will be whether activity and buyer interest picked up appreciably in May after faltering in April. The RICS indicated that housing market activity suffered in April from the ending of a stamp duty concession for first-time buyers on 24 March and from much poorer weather compared with March.
Also of interest will be how many properties are coming on to the market, as there is the possibility that a shortage of properties could provide some support to house prices, although it clearly varies as a factor among regions.
Meanwhile, we expect the RICS survey to reveal that the balance of surveyors reporting that house prices rose over the previous three months edged up to -17% in May, after slumping to -19% in April from -11% in March.
We maintain the view that house prices are likely to trend modestly lower over the coming months. Specifically, we expect house prices to fall by around 3% by the end of 2012. Furthermore, we believe the possibility that house prices could fall more than this is being lifted by the increased downside risks to the UK economic outlook, particularly coming from the problems in the Eurozone centered on Greece and Spain.
Not only does housing market activity remain very low compared with long-term norms, but the fundamentals are currently problematic overall for the housing market with unemployment high, earnings growth muted, and the economic outlook both difficult and uncertain. In addition, relatively tight credit conditions may well make it hard for many people to get a mortgage. On top of this, some mortgage rates have risen recently due to lenders’ higher borrowing costs in wholesale markets and this could well weigh down on housing market activity. Furthermore, the housing market may well be hit in the near term at least by substantial consumer concern over the economic outlook with the UK currently in recession again. Serious worries over the situation in the Eurozone and how this could hit the UK economy may well also lead to increased caution over buying a house.
Industrial Production in April
We expect manufacturing output (Tuesday) to have edged up 0.1% month-on-month (m/m) in April, which would see it up 0.5% year-on-year (y/y). Manufacturing output rebounded by 0.9% m/m in March after dropping 1.0% m/m in February when it may well have been adversely affected by the snow early in the month. Manufacturing survey evidence for April from the purchasing managers and the Confederation of British Industry (CBI) pointed overall to marginal expansion in April.
Meanwhile, overall industrial production is seen rising 0.2% m/m in April after falling 0.3% in March when it was dragged down by sharp drops in utilities’ output and in oil and gas extraction. This would leave industrial production down 0.8% y/y in April.
While manufacturing output is expected to have edged up in April, survey evidence for May from the purchasing managers (in particular) and the CBI was markedly weaker. Particularly worryingly, the purchasing managers indicated that overall manufacturing activity contracting at its sharpest rate for three years in May. It made very grim reading across the board, showing output contracting appreciably in May, domestic demand nose-diving, export orders falling markedly, backlogs of work plunging and employment falling anew.
The manufacturing sector currently faces major domestic and international headwinds that are limiting its performance and at least its near-term prospects. Eurozone economic weakness is weighing down appreciably on overall foreign demand for UK manufactured goods, and the purchasing managers also worryingly indicate that there is a slowdown in demand from the US and Asia. In addition, exporters have had to cope with the pressure on their competitiveness coming from sterling hitting a 33-month high on a trade-weighted basis in May.
Meanwhile, domestic demand for manufactured goods is handicapped by a still-appreciable squeeze on consumers’ purchasing power as well as by tighter public spending. There are reports that the current, highly uncertain economic environment is leading to manufacturing orders being delayed or cancelled.
Trade Deficit in April
The total trade deficit (Friday) is expected to have been little changed at GBP2.8 billion in April. This result would compare with shortfalls of GBP2.7 billion in March and GBP2.9 billion in February. It would be up modestly from the 2011 average monthly deficit of GBP2.3 billion. Within this, the traded goods deficit is seen coming in at GBP8.5 billion in April, which again would be little changed from GBP8.6 billion in both March and February. This would be just above the 2011 average monthly deficit of GBP8.3 billion.
The UK has been looking to improved net trade to boost overall economic activity. Nevertheless, in the first quarter of 2012 net trade was modestly negative, contributing 0.1 percentage point to GDP contraction of 0.3% quarter-on-quarter (q/q) as export volumes of goods and serviced edged up just 0.1% q/q while imports grew by a slightly larger 0.4% q/q.
Serious question marks persist as to whether the UK can achieve a sustained, improved export performance, which helps the economy become more balanced. In particular, concerns persist that UK exports will be limited in the near term, at least, by muted global growth. Of particular concern to UK exporters is likely very weak overall economic activity in the Eurozone for some time to come. Furthermore, events in Greece and Spain currently heighten the downside risk to the Eurozone economic outlook. On top of this, exporters have had to cope with sterling hitting a three-and-a-half-year high against the euro and a 33-month high on a trade-weighted basis in mid-May, although it since has come off these highs.
Latest survey evidence on foreign orders is mixed but clearly softer overall. On a positive note, the Bank of England’s regional agents reported in their May summary that “goods export growth remained strong, particularly to emerging market economies.” Meanwhile, the export orders balance of the CBI industrial trends survey retreated to a four-month low of -12% in May from -10% in April and -2% in February. Nevertheless, it was still clearly above the long-term average of -21%. The CBI indicated that Eurozone economic weakness is weighing down appreciably overall foreign demand for UK manufactured goods, although this is being partially offset by UK exporters “making inroads into high-growth markets.” Finally, the export index of the latest purchasing managers’ survey for the manufacturing sector showed foreign orders contracting for the third time in four months in May and appreciably. While this was again largely due to weakened demand from the Eurozone, orders were also reported to have weakened in May from the United States and Asia.
Meanwhile, moderate domestic demand is likely to limit UK imports over the coming months.
By Howard Archer
12 Jun - RICS House Price Balance, May: -17
12 Jun - Industrial Production, April (Month-on-Month): +0.2%
12 Jun - Industrial Production, April (Year-on-Year): -0.8%
12 Jun - Manufacturing Output, April (Month-on-Month): +0.1%
12 Jun - Manufacturing Output, April (Year-on-Year): +0.5%
15 Jun - Non-EU Visible Trade Balance, April (GBP/Month): -4.2
15 Jun - Visible Trade Balance, April (GBP/Month): -8.5
15 Jun - Total Trade Balance, April (GBP/Month): -2.8
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