As I’ve been pointing out around here uncertainty kills business investment. As business investment is the biggest variable – that is, the piece that varies the most – in GDP it’s the very thing that drives the business cycle. Uncertainty therefore means dismal economic performance.
That uncertainty came in two types. Firstly, simply that of being in an election period. We had one party that was desiring to nationalise a goodly part of the economy and manage into perdition the rest. That, fortunately, didn’t happen. But we’ve also had the much longer-lasting Brexit uncertainty.
Three and a half years now of simply not knowing what the trading terms with the biggest recipient of our exports was going to be. That’s going to put a brake on investment plans, break them even. The election has also dispensed with that uncertainty.
The desirability of the act itself? Well, that’s a political question, not one for here. But the ending of the uncertainty is an economic boost.
We’ve now got the first economic statistic where the data was collected after that election and the Brexit thing being sorted. Predictions were that there would be a bounce:
The consensus among economists is that the figures will show an improvement in the economy and that as result the chances of a rate cut will fall. Economists are forecasting that the flash composite PMI will come in at 50.5 for January, up from 49.3 in December, suggesting that the economy has returned to growth in the past month. Manufacturing is expected to still be in decline, albeit with the PMI reading improving from 47.5 to 48.8, while services PMI is forecast to improve from 50 to 51.
It’s actually rather better than that:
Flash UK Composite Output Index
Jan: 52.4, 16-month high (Dec final: 49.3)
Flash UK Services Business Activity Index
Jan: 52.9, 16-month high (Dec final: 50.0)
Flash UK Manufacturing Output Index
Jan: 49.5, 8-month high (Dec final: 45.6)
Flash UK Manufacturing PMI
Jan: 49.8, 9-month high (Dec final: 47.5)
Sure, we can all argue about whether Brexit is going to be beneficial in the long term – I insist that it will be – but in this short term the removal of the uncertainty is obviously so.