Budget is happening. What did we propose?
Today Philip Hammond, the Chancellor of the Exchequer is going to present his plan for future public spending. With Brexit uncertainty looming ahead and next year’s spending review around the corner, we might not see any major breakthrough, but we expect some changes.
As also reported in the last section of our latest productivity report, Piecing together the puzzle, we submitted a few proposals to tackle the problems related to under-investment and management skills.
On the investment side, we recognise that we need a scheme to incentivise those firms (unfortunately not that many at the moment) that want to scale up and invest beyond the current Annual Investment Allowance of £200,000. For these, we propose an accelerated depreciation which has recently helped to boost investment in countries such as Italy and the US.
However, we recognise that small firms may not benefit from it. So we also propose the re-introduction of the Regional Growth Fund to help local economies to thrive. Compared to the previous fund, this should not be focussed on job creation. This is because the labour market is super-tight with employment at its maximum and unemployment at its minimum, but also because this scheme should primarily focus on productivity.
At the bottom of the page you will be able to find our full set of proposals also regarding energy prices, skills, and working schemes to avoid a Brexit labour shortage.
The best way to start a new month: PMI
On Wednesday, we will have the first indication on how manufacturing has performed in October. Latest PMI was up to 53.8 from the 53.0 registered in September. However, as we underlined in the last few months, manufacturing activity is trending down and official statistics have recorded a negative growth in both Q1 and Q2.
On the positive side, the downturn has actually been revised up a little with a contraction less extended than firstly thought (-0.7% in Q2 instead of -0.9%). But on the negative one, the sector has seen another contraction in August. Overall growth for Q3 should be fairly positive, however this would just allow the sector to get back at the same level seen at the beginning of the year.
The next day, as always, is dedicated to construction PMI. Last month the index slowed down from 52.9 to 52.1. Overall the sector has bounced back in Q2 after the sharp contraction in Q1 (-1.6%) related to the Carillion collapse and the very bad weather in February and March.
However, also due to the bad performance in August (-0.7% in the month), the sector is at a level lower than the one seen in December 2017.
Super-Thursday is coming
Manufacturing PMI and MPC Super-Thursday, what a day!
The MPC is expected to keep rates on hold at 0.75% after the August hike.
However, as every Super-Thursday, it will be very interesting to read the minutes (with a lot of reading between the lines) to understand if the near future will be full of “hawks” or “doves”. For the past few months, the Bank has repeated several times that all the future decision will be strongly dependent on what the final Brexit deal will be. Quite difficult not to agree with that.
Moreover, the new Inflation Report will tell us what the Bank thinks about the economy and their forecast for this year and the following ones. This comes just a month before our new forecasts which will be included in our Q4 Manufacturing Outlook.