There is a hint of hope lurking in the latest figures on the UK economy, but the overall picture is not so good, it seems that the UK is still on course for being one of the worst performing economies in Europe this year.
In the immediate aftermath of the Brexit vote, not much happened to the UK economy. It was as if the vote was immaterial, and the victors cited this as proof that the Remainers’s predictions of doom were nonsensical.
In 2017, a quite different narrative is emerging. It tells us nothing about the long run implications of Brexit, of course, but it is clear that the UK economy has had an awful 2017 so far, the signs are that the awfulness will continue. Meanwhile, the euro area is doing okay. It is also clear that the main reason why the UK is not doing so well is that the fall in sterling seen last year is just beginning to hit the main economy. And the fall in sterling was clearly down to the Brexit vote.
And data out today, seemed to confirm all this.
To remind you, in Q1 of this year, the UK grew by 0.2 per cent – the slowest growth rate in the EU. In Q2 it expanded by 0.3 per cent, one of the slowest growth rates in the EU, and for the first half of 2017, the UK tied with Finland for the honour of holding the title: joint slowest economy in the EU. The EU expanded by 0.5 per cent in Q1, and by 0.6 per cent in Q2.
We won’t have data for the third quarter for another month or so, but in the meantime, we have the purchasing managers indexes – PMIs. Bear in mind, before you read any further that for PMIs, the magic number is 50 – anything more suggests expansion.
The UK has got three of them, a PMI for manufacturing – which did quite well, up to 56.9 – a PMI for construction – 51.1, the lowest reading in 12 months – and the PMI for the key services sector – which fell to 53.2 - the lowest reading since September last year.
Put them together and the three PMIs point to growth of 0.3 per cent in Q3. According to IHS Markit, which compiles the data, “new order volumes increased at the second lowest rate since September 2016.” And Chris Williamson, Chief Business Economist at IHS Markit, which compiles the survey said that “momentum is being gradually lost.”
Meanwhile, the latest composite PMI for the euro area stood at 56.7, the same as the month before, and was consistent with quarterly growth in EU manufacturing and services of 0.6 per cent.
The composite PMIs cover Ireland, Germany, Italy, Spain and France. In every case the index was higher than it was for the UK.
In other words, with one month to go, Q3 is pretty much looking like a repeat of Q1 and Q2, with the UK limping way behind the bigger euro economies.
The hope comes from UK manufacturing exports. Last month, a sub-index tracking this rose to a near record for the series. The latest data was not quite so good, but only marginally so. The weak pound is hitting UK households, which is why the UK economy is seeing such a poor performance, but there is a hint, just a hint, that it is beginning to help exporters.