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Serious / Post-Brexit UK economic downturn
« on: July 23, 2016, 04:51:54 AM »
I haven't been making many threads about Brexit after the vote to avoid being "that guy" who constantly points out the negatives of a policy he doesn't agree with, but this one is pretty important.
One of the best ways to judge the state of an economy is by looking at the output of service and manufacturing businesses and how consumers' purchasing habits have changed. After the first shock to the pound, this information, which is an assessment of business activity in companies and an illustration of business and consumer confidence, has been considered one of the most important staples to assess the current post-Brexit situation and is theorized to influence the Bank of England's interest rates and the spending plans of the Chancellor.
This PMI (Purchasing Managers Index) has been known since yesterday and revealed an even larger drop than what most negative predictions suspected. While this data is still preliminary and the full extent of the PMI's won't be known for another few weeks, many fear that the full numbers will paint an even worse picture as some of the fields expected to have been hit the hardest by Brexit (such as construction) are not yet accounted for. Some snippets of major newspapers:
Question to Meta in specific: how do you think the BoE and Chancellor will react to this? Many are predicting that these numbers have increased the chance of seeing the rates being cut or changes to the Chancellor's Autumn spending plan.
One of the best ways to judge the state of an economy is by looking at the output of service and manufacturing businesses and how consumers' purchasing habits have changed. After the first shock to the pound, this information, which is an assessment of business activity in companies and an illustration of business and consumer confidence, has been considered one of the most important staples to assess the current post-Brexit situation and is theorized to influence the Bank of England's interest rates and the spending plans of the Chancellor.
This PMI (Purchasing Managers Index) has been known since yesterday and revealed an even larger drop than what most negative predictions suspected. While this data is still preliminary and the full extent of the PMI's won't be known for another few weeks, many fear that the full numbers will paint an even worse picture as some of the fields expected to have been hit the hardest by Brexit (such as construction) are not yet accounted for. Some snippets of major newspapers:
Quote
BBC: Brexit causes dramatic drop in UK economy - plunges to worst level since 2009
Britain's decision to leave the EU has led to a "dramatic deterioration" in economic activity, not seen since the aftermath of the financial crisis. Data from IHS Markit's Purchasing Managers' Index, or PMI, shows a fall to 47.7 in July, the lowest level since April in 2009. A reading below 50 indicates contraction. Both manufacturing and service sectors saw a decline in output and orders.
Chris Williamson, chief economist at IHS Markit, said the downturn had been "most commonly attributed in one way or another to 'Brexit'." He added that the economy could contract by 0.4% in the third quarter of this year, but that would depend on whether the current slump continued. "The only other times we have seen this index fall to these low levels, was the global financial crisis in 2008/9, the bursting of the dot com bubble, and the 1998 Asian financial crisis," Mr Williamson told the BBC. "The difference this time is that it is entirely home-grown, which suggest the impact could be greater on the UK economy than before. "This is exactly what most economists were saying would happen." A subset of the PMI figures, shows that service companies, such as insurance or advertising, are feeling less positive about the future than at any time since the height of the recession.
Samuel Tombs, chief UK economist at Pantheon Macroeconomics, said the figures provided the "first major evidence that the UK is entering a sharp downturn". Although he added that the "confidence shock from the Leave vote might wear off over the coming months". Neil Wilson, markets analyst at ETX Capital, said he thought the UK was "heading for a recession again", and that the data would almost certainly prompt the Bank of England to roll out further stimulus. The pound has fallen in response to the publication of the data.
While IHS Markit's reading on the UK economy was worse than most analysts expected, its verdict on the wider eurozone economy was more cheery. Although business confidence dropped to an 18-month low, the overall pace of economic growth was in line with pre-Brexit trends, and employment across the eurozone rose. The optimistic outlook is in line with comments made by the president of the European Central Bank (ECB), Mario Draghi, who said on Thursday that Europe's financial markets had "weathered" the uncertainty caused by the vote.
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Reuters: Britain's economy wilting fast after Brexit vote
Britain's economy is shrinking, the broadest survey of business confidence since last month's historic vote to quit the European Union showed on Friday, leading Chancellor Philip Hammond to pledge a loosening of purse strings if the weakness endures. The Bank of England has also been clear that easing monetary policy may be necessary. The flash, or preliminary, Markit survey of purchasing managers - executives who make spending decisions at 1,250 big firms - fell by the most in its 20-year history.
It was consistent with an economy contracting 0.4 percent in the third quarter, contrasting with an actual reading of plus 0.4 percent in the first quarter. "July saw a dramatic deterioration in the economy," said Chris Williamson, Markit's chief economist. "The downturn, whether manifesting itself in order book cancellations, a lack of new orders or the postponement or halting of projects, was most commonly attributed in one way or another to Brexit."
The Markit PMIs, which give an early indication of how gross domestic product is likely to perform, suggest the 1.8 trillion pound UK economy is shrinking faster than at any time since the aftermath of the global financial crisis. It showed the services sector - one of the few British growth drivers - has been hit especially hard by Brexit, with orders plunging and confidence crumbling. A major concern among businesses is the access Britain will have to the EU's single market after leaving. Britain insists it want to limit freedom of movement of workers; the EU says such freedom is a condition of the single market. The PMI for the services sector fell to 47.4 in July from 52.3 in June, the steepest drop since records began in 1996 and the worst reading since March 2009, around the low point of the global economic recession. Economists polled by Reuters had expected a much smaller fall to 49.2.
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The Guardian: British business activity has slumped as clients cancel orders and postpone projects - economy shrinking at the fastest rate since 2009
Neil Wilson of ETX Capital says the UK PMI survey is “truly abysmal”, and suggests that the EU referendum vote has - as feared - hit the economy. “Today’s super-weak PMI is the first hard evidence that Brexit has already had an impact on the UK economy. There was a sharp fall in activity in July and it now looks like the Bank of England has the data it needs to launch fresh easing at its next meeting at the start of August. Quite simply, the UK economy contracted at the fastest pace since the start of 2009, when the global financial crisis plunged us into recession. The readings suggest we are heading for a recession again and it is almost certain the BoE will pull the trigger on aggressive stimulus to boost aggregate demand.
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Financial Times: PMI survey signals sharp downturn in UK economy
The Bank of England and the government are poised to take action to cushion an economic downturn after closely watched figures showed British business activity suffered its sharpest reverse in July since the financial crisis.
The purchasing managers’ survey is the most significant evidence yet of damage to the economy from the EU referendum result, but the data has not always been an accurate predictor of a recession. A snapshot of July’s PMI figures yesterday sank to a level associated with recession, economists said, pointing out that equivalent surveys in the rest of Europe and the US showed these economies unaffected by Brexit. The Markit/CIPS survey, which tracks activity across the manufacturing and services sectors, fell to 47.7 in July from 52.4 in June, indicating that UK business activity was contracting. This is the lowest reading since the spring of 2009, though still much higher than the indicator’s trough in 2008. The decline in activity was most evident in the services sector, accounting for 80 per cent of the UK economy, with new orders falling at the quickest rate in more than seven years. Data for future business expectations also showed the largest monthly fall on record.
With very few exceptions, the private sector economic surveys of the period after the EU referendum have shown very large drops in the measures of sentiment, confidence and production. The GfK consumer confidence survey remains at a reasonably positive level but has not suffered a larger drop than it did in late June and early July for 21 years. Households report a loss of confidence in the economic outlook, their expectations of incomes and whether it is a good time to make large purchases. In the corporate sector, surveys from the Institute of Directors, Deloitte and Lloyds Bank have all shown companies reporting a distinct deterioration in business conditions. The one partial exception to this was the Bank of England’s report of its regional agents, which showed “no clear evidence of a sharp general slowing in activity” so far, although a third of companies thought they would scale back investment plans over the coming year. The PMI indices attempt to measure output as well as sentiment. With activity in the flash survey for mid-July at its lowest level since 2009, there was little good news, although manufacturing was hit less hard than services.
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Bloomberg: Brexit wreaks havoc on UK economy as recession risk increases
The U.K.’s decision to leave the European Union inflicted an immediate blow on the economy as business activity shrank at its fastest pace since the last recession seven years ago. In the weeks following Brexit, there was a “dramatic deterioration,” Markit Economics said in a one-time report published Friday. Services and manufacturing shrank and a gauge of the private-sector economy plunged to 47.7, well below the 50 level that divides expansion from contraction. The slump is the strongest evidence yet that politics is propelling the world’s fifth largest economy into recession. It intensifies pressure on the Bank of England to deliver fresh monetary stimulus and on the government to reverse fiscal austerity. The pound dropped after the report was published, with Markit saying its latest readings put the economy on course to contract by 0.4 percent this quarter.
“July’s PMI certainly points to more easing,” said Samuel Tombs, an economist at Pantheon Macroeconomics in London. “We’ve seen a variety of business measures fall to levels not seen since the financial crisis. Although consumer confidence might hold up for the next few months, businesses are putting the brakes on investment.” A gauge of services, the biggest part of the economy, dropped to 47.4. The slide in the composite Purchasing Managers’ Index was sharper than economists had predicted and was the biggest drop on record. It’s now at the lowest since April 2009, when the global financial crisis had helped push the U.K. into five straight quarters of contraction, and then Prime Minister Gordon Brown said an “international hurricane” was battering the world economy.
Question to Meta in specific: how do you think the BoE and Chancellor will react to this? Many are predicting that these numbers have increased the chance of seeing the rates being cut or changes to the Chancellor's Autumn spending plan.