+++The current issue of our monthly bulletin has been published! Our topics: British government suffers first setbacks in Westminster, Italian elections present next great Euro risk, Aussie-Dollar stands to appreciate markedly+++
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+++4 January: UKES tending sideways, mirroring wait-and-see mode of UK businesses+++
In what can only be termed as lacklustre, our UKES has been tending sideways over the turn of the year. Some decent numbers such as the FTSE 250 opening higher on the first trading day in 2018 than its close a month earlier have been countered by disappointing ones such as the deterioration of the manufacturing PMI, in effect cancelling each other out. Indeed, that perfectly fits the mood of many UK businesses waiting for the next and crucial developments in the Brexit negotiations which won’t yield any clear signals before March. Until then, expect the current state to continue. However, risks are definitely tilted to the downside: If negotiators in Brussels fail to deliver palpable results, the reaction ought to be severe; in that case, we project the long anticipated fall of the UKES’s expectations component through the main indicator line, pointing towards a marked fall of growth rates. If, on the other hand, a transition deal will be struck fast and conclusively, in our view that doesn’t stand to trigger a relief rally.
Sources: UK Parliament, Office of National Statistics, CNBC, London Stock Exchange, Trading Economics, Bloomberg
Our own UKES is an indicator for the state of the UK’s 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.
PMI Manufacturing (Dec.)
PMI Services (Nov.)
GDP growth (Q3/17)
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