Realist, not conformist analysis of the latest financial, business and political news

As I’ve Been Saying The Brexit Bounce Is Here

For some time now I’ve been saying that getting Brexit done is going to lead to a bounce in the UK economy. I really have been saying this.

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.

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[…] Brexit Bounce is […]

4 years ago

The uncertainty is not over. Yes, we do know for certain that Brexit is definitely happening. But we won’t know what “the trading terms with the biggest recipient of our exports” will be after the end of the transition period until much later in the year. If negotiations on the future relationship are extended – the government says they won’t be, but we all know what political promises are worth – then we might not know until well into 2021. So, the really interesting question here is why so many people are acting as if they have certainty when in… Read more »

4 years ago
Reply to  AndrewZ

Seconded. You have a little more certainty, as you have dumped the coalition government that couldn’t muster a majority for *any* plan. But you don’t know that Brexit is definite. You have a more pliable Parliament, but a plan that still involves “negotiating” with your captor. These negotiations could still produce a “Brexit agreement” that is unpalatable. Worse, Parliamentarians who don’t really want Brexit may make it more unpalatable, or may invent reasons to oppose it anyway. Boris is newly popular but, like Trump, all sides will try to chip away at his popularity, and the “negotiation” will take longer… Read more »

4 years ago
Reply to  AndrewZ

Doesn’t matter. Knowing Brexit will happen means no Single Market and no Customs Union. For most businesses that’s the most important thing by far.

Businesses can now decide whether to shift markets or accept that their exports to the EU will be a little more costly and so will have to work a bit harder.

The idea they need to know the exact trading terms is just silly.

Andrew Carey
Andrew Carey
4 years ago

Fair play to the Wyoming kid, or Bathonian Kid, or whatever his moniker would be if he got on a horse, but just like the guy from Nissan UK who stated that other factors mattered but it was the uncertainty that was the main thing of the frustrating, he has called this correctly.

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