UK stagflation concerns resurface – Commerzbank

UK macro data released on Friday was a double whammy: firstly, October retail sales surprised with a decline (and previous months were also revised downwards), followed by an equally weak November PMI. The outlook for growth in the fourth quarter is not very good, given that growth in the third quarter was already quite weak, said Commerzbank currency analyst Michael Pfister.

Growth will accelerate slightly next year

“It should be noted that retail sales and business activity indices are quite volatile and subject to further revisions, and the growth forecast power of the data has been quite weak in recent quarters. At the same time, however, the figures also highlight the challenges the UK still faces: weak retail sales in October were likely, at least in part, due to consumers holding off on spending ahead of the new budget.”

“On the other hand, PMIs are likely to indicate that companies are less optimistic about the future precisely because the Budget is largely targeting companies with tax hikes. Despite these numbers, we still expect some acceleration in growth from next year. This is supported by the fact that the government is significantly increasing its spending while wages continue to rise faster than prices, giving consumers more money to spend in real terms.”

“Only if there is also weaker data from the real economy in the coming months will we really be able to talk about a reversal, although the risks of this are clearly increasing.”