It’s a hat trick. This morning saw three in a row, that’s three closely watched reports, each focusing on a different aspect of the UK economy, all indicating a sharp recovery from July, appearing to push the post-Brexit fears over the UK economy into the category of ‘panic without reason’. But there is a dark cloud on the horizon.
The latest purchasing managers index – PMI – tracking UK services was released this morning, and it was good. Put this together with last week’s PMIs tracking construction and services and the UK seems to have banished the worst of the immediate Brexit fears.
The services PMI rose to 52.9, a healthy reading, and compared to July’s awful reading of 47.4. Any score over 50 is meant to be consistent with expansion, so the index is on the right side of that key number. It was also the second month in a row to see a record, July saw the index suffer its biggest monthly fall in the 20-year history of the index, the rise from August to July was the biggest ever month on month increase.
If nothing else, it shows how the Brexit vote distorted things, creating panic, followed by a sense of relief, as the penny dropped that the roof had not collapsed on the UK Economy.
Last week’s PMIs tracking UK manufacturing and construction also rose, meaning that the composite index surged in August too, rising from 47.4 to 53.2. The index was consistent with quarterly growth of 0.5%.
Many are reacting by saying ‘phew’, what a relief.
It’s been a funny old period since the EU referendum. In the immediate aftermath of the vote markets panicked, but then when it dawned on people that nothing much had changed, that we had no idea what Brexit might entail, the markets settled and business leaders removed their fingers from the panic button.
This does not mean it is time to relax, that the fears of the Remain camp have been pushed into never never land.
Scott Bowman, UK Economist at Capital Economics, said: " the survey should be treated with some caution. Just as the July survey probably overstated the economy’s underlying weakness, the August survey probably overstates its subsequent recovery. We think an average of the July and August surveys paints a more accurate picture of the economy post-Brexit. And this is consistent with quarterly GDP growth of close to zero."
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics said: that the "economy... is weak enough for the MPC to follow up August’s easing measures with a further rate cut, probably to 0.1% from 0.25% in November. A rebound in inflation, however, likely will ensure the MPC holds back from providing additional stimulus thereafter.”
But, as has been suggested here before, it really is way too soon to tell what the long term effects of the EU vote will be. Much depends on what trade deals the UK can agree with foreign partners, but in this respect, the latest news from the G20 is worrying.