Forecasting Eye 

 

While the politicians play parliamentary games, the UK economy is close to recession.

 

GDP fell in Q2 2019 by 0.2% after a 0.5% rise in Q1. The swing was largely driven by the Brexit inventory cycle to which Cebr first drew attention.

 

There is a lively debate about whether GDP will fall in Q3. The Flat White Economy, which of course is only partly picked up in the figures, seems to be having difficulty obtaining the continuous funding that has been driving its growth. US funders still seem willing but European funders are pulling out.

 

B2B is looking very sick. New product launches, PR and advertising campaigns are being pulled or put on hold.

 

There is reasonable deal flow from the $ area into the City because of the weakness of sterling. But few are putting in real investment at present while the political position remains fluid. The risk is not only the uncertain Brexit outcome but of a Corbyn government, which now is a distinct possibility.

 

Above all, the latest construction data shows a distinct weakening with the sharpest drop in new orders since 2009 revealed this month. HMRC data indicates a 12% drop in residential property transactions in the year to July.

 

John Lewis’ latest weekly sales data reveals a 3.1% year-on-year drop – although real incomes are rising, the consumer credit cycle is looking unfavourable as debt levels rise to rates that cause concern.

 

And this is just the domestic economy.

 

Outside the UK there is a trade war, Germany is probably in recession, Chinese growth is trending down and while the US seems to be enjoying a slight monetary boost, there is little ammunition left to give the economy a pre-election push next year.

 

And of course there is Brexit – whatever one thinks about the long term prospects, the process now looks highly likely to be disruptive at best.

 

So although there is some doubt as to the exact timing of the appearance of recession against a background of volatile inventory swings, it now seems improbable that a UK recession can be avoided over the next nine months. This should be worrying the politicians and the electorate just as much as the Parliamentary impasse.

 

Contact: Douglas McWilliams dmcwilliams@cebr.com phone: 07710 083652