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ECONOMIC DATA THIS WEEK

UK GDP, 2nd Quarter 2017:  The Office for National Statistics (ONS) released its preliminary estimate for the UK economy in the 2nd quarter of the year;  at +0.3% compared to the previous quarter, this was an acceleration, but it is less than the same period in 2016, so the annualised rate fell to +1.7% (from +2.0% after Q1).

The ONS reported an improvement in services output to +0.5% for the quarter, with retail trade and film production and distribution the main contributors to this improvement.

The data for manufacturing showed a fall of -0.5% compared to the previous quarter;  while we don’t have all the data for the quarter - the June output data is published in a couple of weeks time - we do have some indications of what is driving this weakness.  In the May data release, the ONS highlighted “widespread weakness across the manufacturing sub-sectors”, but went on to note that most of the downturn in manufacturing was due to the “highly volatile pharmaceutical industry”.  Data from the Automotive industry, which we have included as a separate item this week, will also have held back manufacturing output in the 2nd quarter of 2017.

You can download the ONS Statistical Bulletin from their web-site at www.ons.gov.uk or request it from MTA.

CBI Industrial Trends Survey, July 2017:  The results from the July edition of the CBI survey show that production among UK manufacturers in the latest 3 months (effectively the 2nd quarter of the year) rose at its fastest pace since the start of 1995.  While over half of this improvement was in the food & drink industry, 10 of the 17 sub-sectors had an improvement relative to the previous quarter.

The pace of growth in new orders moderated, but given that the level of order books is at its highest since October 1988, slower growth is probably inevitable!  Growth in export orders also remained strong and respondents expectations for export orders in the coming 3 months were at their highest for 40 years.

As we move to one year beyond the sharp fall in the exchange rate that resulted from the Referendum result, so cost pressures (in the form of rising input prices) have eased and are expected to cool further in the near-term future.

As this is a quarterly survey, it gives the latest indicators of investment intentions;  the overall figures for predicted spending on plant & machinery have recovered from the dip in the April survey and are back at the above average level we saw in January.  The drivers of investment were, however, very similar to the April survey with just a small increase in the respondents saying that they intended to expand capacity.  As usual, the main constraints to investment are “uncertain demand” (47%) and “inadequate return” (46%) - these, like the other factors, were at very similar levels to those seen in April.

The sectoral data on investment intentions is less positive;  although there was a sharp improvement (the data at this detailed level is often quite volatile) in investment intentions for the Transport Equipment industries - where it stood at its most positive level since April 2012 - the balance fell for both Mechanical Engineering (Machinery) and Metal Products;  for Mechanical Engineering, it was at its most negative since April 2011.

You can download the CBI’s News Release from their web-site at www.cbi.org.uk/news (dated 25th July) or request it and a summary of the survey results from MTA.

UK Automotive Production, 1st half of 2017:  Data released by SMMT (the trade association for the UK automotive industry) shows a mixed picture of production in the 1st half of 2017.  Manufacture of cars has fallen by -2.9% compared to the same period in 2016 (January to June) to 866,656, with those sold in the home market falling by -9.5%, while exports were only down by -0.9% and now account for almost 79% of the total (the highest ratio for 5 years).  It is worth noting that although car output fell, SMMT says that this is mainly due to the phasing in of new and amended models and that despite the reduction, the total for the 1st half of the year is still the 2nd highest on record for this period in the past 12 years (beaten only by 2016).

There is more positive news with an increase of +3.6% in the number of engines produced to just over 1.4 million;  of these, 57% were for export, although many of those supplied to the home market will, subsequently, be exported once fitted into the cars.

Production of commercial vehicles fell by -8% in the 1st half of 2017, with a 12% increase in exports more than outweighed by a fall of -30% in those destined for the home market (SMMT notes that the past two years have been very strong for the UK market for commercial vehicles).  This has raised the export ratio to 63.5%, the highest in seven years.

You can download the SMMT announcements from their web-site at www.smmt.co.uk/news (dated 27th July) or request them from MTA.