The basic British problem
At the moment, Brexit is the basic problem with the British economy. The unanswered questions on people’s tongues include: When is the country going to leave the European Union? On what terms?
All of these lead to uncertainty and uncertainty can be a killer for economic growth. So, clearly, one would like to know how much that uncertainty is constraining matters.
By this point, most would expect the UK to head into a recession given how the Brexit story has dragged out. Since this is not the case, it does show a certain resilience in the economy that seemed oblivious to some people.
Everyone is distinctly uncertain about how and even whether Brexit will take place and this damages the economy. GDP figures show this - they were bad last month because the car makers shortened operations on the premise that they were supposed to leave the EU.
That being said, GDP is looking better now as they restart production. In fact, UK GDP grew by 0.3 per cent, month on month, in May, rebounding as expected from a 0.4 per cent contraction in April. Supporting the headline the most was a 1.4 per cent jump in manufacturing output, which came mainly on the back of a recovery in car production following planned shutdowns of auto factories in April.
Index of Services
The Index of Services is another measure that backs up the GDP numbers. The index is by far the larger part of the UK economy, in the 75 to 80 per cent range. In the three months up to May 2019, services output increased by 0.3 per cent compared to the three months ending February 2019.
Index of Production
When referring to the Index of Production, one is essentially talking about manufacturing plus energy and mining. By comparison, this is very much a small part of the UK’s economy. However, it's also the more variable of the two indices, so while it's not so important in itself it can be as a sign of turning points.
That said, in the three months up to May 2019, production output rose by 0.3 per cent in comparison to the three months ending February 2019. This is due to rises in all the four main sectors, led by mining and quarrying and manufacturing.
Another big macroeconomic number is the trade balance. The UK saw this improve as the total trade deficit decreased by £4.6 billion due to the trade in goods deficit decreasing by £4.6 billion.
Obviously, these macroeconomic numbers are not anything to boast about but there is still steady growth in the midst of Brexit’s headwinds.
Any change in monetary policy from the Bank of England as a result of these figures is not expected. They are only a little better than most thought they would be and using the standard conventional view while we might all hope for better, there's no reason for a change in the policy stance.
To conclude, the British economy does seem to show resilience; if growth against such headwinds of uncertainty is occurring, the medium term future should not be bad.
This article was issued by Maria Fenech, investment management support officer at Calamatta Cuschieri. For more information visit, https://cc.com.mt/ . The information, view and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice.
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