- Consumer spending growth ticked up, boosted by the warmer weather, but remained modest.
- Rising uncertainty, mostly related to concerns around Brexit, contributed to a slight softening in investment
- intentions.
- Export and domestic manufacturing output growth slowed modestly, but remained above average.
- Recruitment difficulties remained elevated; average pay settlements were a little higher than a year ago.
Annual consumer spending growth rose slightly, supported by the warmer weather, which boosted demand for seasonal food and outdoor leisure goods and activities. The underlying picture remained one of modest growth, however. Contacts reported weak demand growth for new cars, white goods and homewares, due to weak real income growth and housing market activity.
Growth in business services activity eased somewhat, and contacts indicated that there was tighter cost control on discretionary spending due to heightened uncertainty ahead of Brexit. Corporate financing and mergers and acquisition activity softened, following a period of elevated demand. IT and recruitment firms continued to report strong growth in demand.
Growth in services export values was broadly steady, supported by inbound tourism and demand for IT and recruitment services, as well for advisory services from overseas investors.
Growth in domestic manufacturing output eased slightly but remained above its long-run average. Companies in consumer goods-related supply chains faced headwinds from weaker demand growth, especially for cars and other big-ticket items. Some contacts reported weaker demand in construction supply chains, but demand from the oil and gas sector continued to improve. Growth in manufacturing export volumes also moderated, as global demand softened and the boost from sterling’s past depreciation began to wane, but growth remained above average.
Construction output growth edged up, but remained sluggish. Growth in housebuilding slowed in some regions and some large commercial and infrastructure projects were delayed or put on hold. Conditions were more resilient in the private rental sector and student accommodation. Contacts cited skills shortages as a constraint on growth.
Investment intentions for the next 12 months softened slightly, depressed by economic and political uncertainty. Concern focused on the possibility of increased trade frictions with the EU after withdrawal, which some firms cited as a reason to put investment on hold or divert it to other countries or subsidiaries.
Corporate credit demand remained subdued, partly reflecting strong corporate cash balances and scarring from the financial crisis. Some larger contacts reported refinancing early in case of pre-Brexit volatility but such activity was expected to wane as Brexit approaches. Bank credit remained readily available for larger companies and those with strong balance sheets.
There was modest excess demand among investors for commercial real estate, but the underlying picture was mixed. Contacts reported increasing vacancies in secondary retail premises, albeit from a low base. Growth in demand for London office space weakened, while demand for logistics and warehouse premises remained buoyant.
The housing market softened a little in some areas, with some contacts reporting that properties were taking longer to sell. Activity was stronger at lower price levels. Demand for new-build houses continued to be supported by the Help-to-Buy scheme.
Capacity utilisation remained higher than normal in both manufacturing and services, with contacts citing availability of labour as the main constraint on output.
Employment intentions remained positive in most sectors except for consumer services, which weakened slightly. Recruitment difficulties remained elevated. Average pay settlements were a little higher than a year ago, in a range of 2½%–3½%. Growth in total labour costs picked up due to the increase in employers’ pension auto-enrolment contributions, the Apprenticeship Levy, and ad hoc payments to retain staff with key skills.
Materials cost inflation remained elevated, reflecting higher global demand for commodities, and increased prices for fuel, energy and food. Many contacts reported being able to implement small increases in output prices.
Consumer goods price inflation held steady but contacts in the grocery sector expected upward pressure on food prices to emerge due to the dry weather reducing yields of some vegetable and arable crops.
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