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.
+++27 August: Looks like a v-shaped recovery – stands to prove a w-shaped one, though+++
A quick glance at our UKES would seem to prove the Bank of England’s assessment accurate (if in all due humility we might say so): That the UK economy is going to experience a v-shaped recovery indeed. Both sub-indicators and, thus, the main indicator have recovered from their historic troughs back in April/May in momentous fashion, with the expectations component even back in positive territory as well as up and above both the state component and the main indicator; normally, that signals an ongoing economic expansion ahead. But hold on: All that, of course, depends on a mighty ‘if’ related to coronavirus: If there’s either no second wave of infections or a treatment/vaccine in a timely manner, our UKES points towards a decent recovery of the UK economy fast enough to prevent the much-feared onslaught of mass redundancies. If, however, anything akin to a second wave is going to necessitate measured lockdowns or the like time and again over the course of the coming months until, lastly, a treatment or vaccine become available, the apparent second leg of a ‘v’ will turn out to be the first of a ‘w’, instead. And that’s exactly what we still expect: Not only is it highly unlikely that, henceforth, coronavirus will suddenly cease to impinge on the global economy, but also is the government’s furlough scheme going to end earlier than the eventual defeat of the virus is going to happen – with the related consequences for employment, consumer confidence and, hence, retail sales. Note that wage growth has become negative for the first time in years already, so that households will tend to become thrifty in the months ahead; if rising unemployment were to add to that in due course, consumption demand would contract severely. Manufacturing, likewise, ought to have seen the best part of the steep recovery already, with any further upside limited by the ongoing disruption to exports demand from the rest of the world. These are unprecedented times – and all signs of recovery, though welcome, should always be taken warily as long as coronavirus remains with us.
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