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+++13 June: UKES treads water as parliament arrives at first showdown over Brexit+++
For quite some time now, our UKES has been mirroring the wait-and-see mode of the UK economy. Sentiment is not really bad, as the expectations component bouncing off from the main indicator line has demonstrated time and again. Current business conditions, however, have been slowly deteriorating over the past months, as the state component shows. The most recent, disconcerting data on industrial production has confirmed that deterioration, even though all components of the UKES logged a small recovery in May, primarily down to markedly improved PMI statistics and much better than anticipated retail sales figures. The loss of steam from the erstwhile leading manufacturing sector, however, will undoubtedly materialise in the next update of our indicator, as its repercussion will be felt from this month onwards only. In any event, having never pencilled in better GDP growth than 0.2 per cent for the second quarter, we now project that exact number to turn out as the actual quarterly growth rate in the three months to the end of June. With the government staving off a defeat over Parliament’s voting on the amendments to the EU Withdrawal Bill, sentiment will be remaining stable for now, but uncertainty will linger, too.
Sources: UK Parliament, Office of National Statistics, CNBC, London Stock Exchange, Trading Economics, Bloomberg
Our UKES is an indicator of the condition of the UK economy which, otherwise, does not exist in this comprehensive form. It consists of two components and the main index.
The component “expectations” runs ahead of the current situation, comprising elements such as development of inflation and interest rates, consumer- and business confidence, etc. The “state” component describes the current situation and comprises data such as industrial production, net trade, etc. The main index, then, is a smoothed combination of the two components.
The UKES describes the development of the British economy in the recent past rather precisely; particularly the expectations component has emerged as a valid tool for prognosis. It is calculated to scale so that a positive reading of the state component as well as the main index signals current economic expansion. Furthermore, the UKES generates these other signals:
When the expectations graph rises through that of the state component, that is a valid signal for an economic upturn in the near future (3-6 months) and vice versa for a break-down through the state graph. When the state component, additionally, plots over the main index, that signals a healthy and stable economic expansion; when it plots beneath the main index, the current economic upturn has not yet solidified.
Composite PMI (June)
Retail sales (May)
Exports growth (Apr.)
Individual country ranges according to historic max-/min levels
Sources: US Bureau of Economic Analysis, US Bureau of Labor Statistics, US Census, Australian Bureau of Statistics, Instituto Brasileiro de Geografia e Estatistica, Customs General Administration of China, bloomberg, Institut national de la statistique et des études économiques (INSEE), UK Office of National Statistics (ONS), Trading Economics