Economy sustains its momentum but price pressures rise

The latest business surveys suggest that the economy maintained its strength at the start of Q4. Gains in both the Markit/CIPS services and construction PMIs in October left the economy-wide composite PMI looking consistent with quarterly growth in GDP of around 0.5%, in line with Q3’s rate. Admittedly, the surveys brought further evidence of increasing price pressures, raising concerns that growth will slow sharply further ahead. But we don’t think that the rise inflation will be too stark by past standards and supportive policy, such as rock-bottom interest rates and a relaxation of the planned pace of fiscal tightening in the forthcoming Autumn Statement should ensure that any slowdown is not too severe. Overall, then, we think that GDP growth will only moderate from around 2.0% this year to about 1.5% in 2017.