Manufacturing output growth eased in the three months to March, but remained firm compared with historical averages. While total export order books softened slightly, export order books remained strong. However, export orders are down from the multi-year highs seen in recent months, tentatively suggesting that the competitiveness gains from the fall in the pound may have peaked.
The CBI’s latest Industrial Trends Survey (ITS) and member anecdotes give an early insight into the impact that March’s bad weather has had on economic activity. The recent cold snap seems to have affected the High Street, with the CBI’s Distributive Trades Survey (DTS) showing that retail sales fell in the year to March, for the first time in five months. Growth in online sales also slowed sharply (to the lowest level since the series began in 2009), which may have been down to transport disruption hampering deliveries.
The hit from the bad weather comes at an already tough time for retailers, as the squeeze on household incomes bites on consumer spending. Although real earnings growth (deflated using CPIH) edged into positive territory (0.1% y/y) in the three months to January for the first time in a year, it’s important to remember that they essentially remain flat. Although the CBI expects the squeeze on household incomes to ease somewhat further, any pick up is likely to remain tepid compared with pre-crisis levels.
Alongside retail, the construction industry and its supply chain also reported widespread disruption from the colder weather. Anecdotal estimates so far point to two to five days of lost output over this period, with most projects unable to catch up on this lost work. IHS/Markit’s construction PMI revealed the fastest decline in construction output since July 2016, with the sector noting that bad weather disrupted staff availability and activity on site. Likewise, the IHS/Markit’s services PMI revealed the weakest performance since July 2016. Anecdotal evidence from the services sector highlighted that the unusually bad weather had disrupted business operations and contributed to slower consumer spending. In addition, there were some reports that Brexit-related uncertainty had led to delayed decision-making and risk aversion among clients.
Taken together, this suggests that the UK can expect a small hit to GDP growth over Q1 2018. Much depends on the degree of offset from other sectors – for example, colder-than-usual weather tends to boost energy output. As an illustration, the Bank of England believe that the bad weather will reduce GDP growth by 0.1 percentage points (with their forecast for Q1 growth currently at 0.3% – consistent with what the PMIs are pointing to for Q1 growth).