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Specialising in the politico-economic risk analysis of the Commonwealth’s member states, we have created our own economic indicator for the UK economy which, otherwise, does not exist in this comprehensive form: the UKES. It consists of two components constituting 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.
+++1 July: Sentiment drops sharply to post-referendum lows as main indicator falls towards zero+++
As if succumbing to the current heat, the UK economy is heading towards a torpid summer. Rather than recovering from its recent drop to negative values, economic sentiment as depicted by the expectations component of our UKES has been continuing to weaken, now reading at a new post-EU-referendum low. Since current trading conditions have been faltering, too, the main indicator has thus dropped to almost nil, the line between expansion and contraction. By now, it’s not only Brexit dragging business down: The simultaneous slowdown of global economic activity due to the Sino-American trade war remaining unresolved after the G20 summit in Japan adds to the loss of steam. The one statistic depicting this best is the contribution of net trade to the UK’s GDP in the first quarter: While exports were flat during that period, imports rose by almost seven percent, thus single-handedly all but wiping out both positive contributions of government consumption and an attempted recovery in business investment. At the same time, the labour market shows unequivocal evidence of having peaked, so that henceforth, every further weakening of the UK economy will dent employment and weigh on wages which have fuelled prodigious consumer spending so far. We therefore stick to our projection more than ever: If Brexit comes to its chaotic no-deal conclusion this autumn, or is pushed into further uncertainty yet again, the UK economy stands to be grinding to a halt.
GDP growth (Q2)
Services PMI (July)
Industrial prod. (June)
Manufacturing PMI (July)
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