The costs of uncertainty | Financial Times


The UK economy is virtually stagnating during the first quarter of the year, according to nowcasts of economic performance provided to the Financial Times by now-casting.com.

Now-casting.com uses a range of economic indicators to predict how the economy is performing right now and, since October, their prediction for UK growth in the first quarter of 2018 has been trending downwards from about 0.4 per cent to virtually zero today as the survey data has come in softer than anticipated. 

For example, February’s manufacturing purchasing managers’ index suggested that activity in Britain’s factories was slowing and manufacturers were cutting jobs. Partly this represents the effects of a global manufacturing slowdown: factories across Asia and Europe reported an even worse performance.

But it also reflects the damping effect of Brexit uncertainty on domestic demand from consumers and businesses. Economic sentiment dropped to its lowest level for six years during February, according to the EU’s barometer, also published last week, which is closely correlated with quarterly growth

While the pound rallied last week after news that British politicians may end up delaying Brexit for a short period if they cannot find a mutually acceptable deal with the EU, an extension of the uncertainty may come at a bad time for the British economy which now has to contend with what looks like a global slowdown as well as its own domestic problems.

This week’s calendar

Monday

9.30: Construction purchasing managers’ index (February)

Activity in the construction sector dropped to a 10-month low during January. The sector is particularly vulnerable to Brexit-related uncertainty given its dependence on investment spending and its sensitivity to expectations about the future.

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Tuesday

9.30: Services PMI (February)

Accounting for about 80 per cent of the UK economy, the performance of the services sector will give us the best indication so far of how the economy performed during February. In January, the gauge fell to its lowest level since the EU referendum. 

15.35: Mark Carney at the House of Lords economic affairs committee 

The governor of the Bank of England will kick off a week of speeches by members of the central bank’s Monetary Policy Committee when he appears in front of the Lords Economic Affairs committee. Expect not only the usual questions about how the BoE might react to a disorderly Brexit, but also questions about the use of the retail price index as a measure of inflation, which the committee criticised earlier this year

Wednesday

12.15: Jon Cunliffe speech 

Jon Cunliffe, deputy governor for financial stability at the Bank of England, will be the next member of the MPC to speak this week. He will be hosted by the London School of Economics Student Union and the speech is titled The Next Great Crisis. 

17.30: Michael Saunders 

Michael Saunders, an external member of the MPC and a former head of European economics for the US investment bank Citigroup, will be speaking at Imperial Business School. Mr Saunders is generally regarded as among the more hawkish members of the MPC. No details of the subject of his speech have been released. 

Thursday

9.30: Silvana Tenreyro speech

The last of this week’s MPC speeches will come from external member and LSE professor Silvana Tenreyro who will be speaking during a visit to Glasgow. No details have been released about the speech yet. 

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