While manufacturing activity in the United Kingdom, like elsewhere in Europe, is in a difficult state, the situation is less worrying across the Channel. Industrial production rose by 1.1% m/m in August, returning to its April levels. The year-on-year fall in output has almost completely subsided (-0.3% y/y). This situation is in line with the manufacturing PMI for October, which was down on the previous month (-1.2 points, to 50.3), but is still in expansion territory. The services PMI fell by 0.6 points to 51.8, and therefore also contributed to the decline in the composite index, which dropped by 0.9 points to 51.7 in October.
Consumption of goods regained some momentum in Q3. New vehicle registrations rose by 2.2% m/m in September, pushing the three-month moving average to its best level since May 2021.[1] In its wake, car production also rebounded in September to its highest level in seven months. In addition, retail sales rose by 0.3% m/m in September and by 1.9% q/q in Q3. However, spending on food fell back (-1.9% m/m), with the ONS pointing anecdotally to the effects of ‘bad weather’ and reduced spending on high-end food products.
Employment dynamics remain difficult to pin down, given the current problems surrounding the reliability of the LFS survey. Nevertheless, for several months now, the ONS has been publishing data based on administrative returns from companies, which indicate an increase of 0.1% m/m (+26,700) in the number of employees in September. However, this follows a much larger fall the previous month, of 0.4% m/m (-117,500).
The risk of inflation has largely receded, and the Bank of England is likely to proceed with a second cut in its policy rates at its meeting on 7 November. Headline inflation fell back to 1.7% y/y in September, driven mainly by falling fuel and airfare prices. However, there are still some pockets of resistance in services, particularly in recreational and cultural activities (+7.4% y/y), phone services (+4.6%) and hotels, cafés & restaurants (+4.1%).
Despite a smaller post-COVID rebound in activity than the Eurozone average, the United Kingdom has made up some of its lost ground in 2024 and should continue to do so in 2025. This is our forecast, as is that of the IMF, which has raised its growth forecast for 2024 from 0.7% to 1.1%, while also keeping its estimate for 2025 at 1.5%.
Article completed on 24 October 2024
