Bank of England - agents' summary of business conditions


Growth in retail sales values had slowed, reflecting weaker spending on white goods and homewares. This was potentially associated with subdued housing market activity, consumers bringing forward spending to the Black Friday sales in November, and the continued squeeze on household incomes. 

Consumer services turnover growth had held up, though there were some signs of a slowdown in Q1, for example in casual dining. 

Business services turnover growth had been modest but had strengthened, reflecting growth in demand for legal, accounting and advisory services, as well as work related to insolvency and restructuring which has picked up from a low base. 

Domestic manufacturing output growth had eased slightly, though exporters continued to report strong growth, and demand from the EU had picked up. 

Growth in construction output slowed further, with the overall level of activity little changed on a year earlier. 

Investment intentions remained modest, but had picked up slightly among manufacturers, reflecting expansion to cope with strong export demand and investment in automation to relieve recruitment difficulties and improve productivity. 

Overall growth in corporate credit demand remained subdued, reflecting a persistent aversion to gearing following the financial crisis. However, there was some demand among firms to borrow to facilitate growth and enhance efficiency. 

In commercial real estate, capacity had tightened, reflecting a lack of properties coming onto the market combined with a modest rise in demand from investors. Across the UK, there continued to be appetite from foreign investors, most notably from Asia. In London, however, many institutional investors continued to view the market as overvalued, and were less active as a result. 

Housing market activity had remained subdued. Lack of stock in the secondary market was depressing demand by limiting choice for prospective buyers. However, demand for newbuild property was robust, supported by the Help To Buy scheme. Mortgage activity was dominated by remortgaging deals as homeowners looked to lockin low fixedrate deals in anticipation of further interest rate rises. 

Capacity utilisation had increased slightly in manufacturing, and constraints were beginning to bite among exporters. Capacity utilisation remained around normal in services. 

Employment intentions continued to point to modest headcount growth. At sectoral level, hiring intentions in accountancy, legal and logistics had picked up slightly, but had edged down in consumer services. Recruitment difficulties remained elevated and were a primary concern raised by many contacts. 

Growth in total labour costs remained modest, though average pay settlements this year were a little higher than in 2017 for many contacts, at between 2½% and 3½%. 

Input cost inflation eased slightly and firms regarded the inflationary impact of sterling’s depreciation on input and imported finished goods costs as having largely peaked, except for in energy, where forwardcontracting meant there was further passthrough to come. A survey on corporate pricing by the Agents showed that firms expected output price inflation to fall back this year as import price inflation eased. 

Consumer goods price inflation had eased but remained elevated, though contacts expected it to abate over the coming year, especially for imported goods such as clothing and cars, as the effect of sterling’s depreciation wanes. Consumer services firms had been able to implement small price rises in order to partially cover cost increases. 

For a more in-depth summary please click here