As Boris Johnson took over as Britain’s new prime minister, with a speech urging enthusiasm and optimism, numerous economists were warning that Britain may be on the brink of recession caused by uncertainties around Brexit. That same day, the European Central Bank suggested that a rate cut and more stimulus was on the way after its president Mario Draghi admitted the outlook for manufacturing in the bloc was getting “worse and worse”.
Globally, there was more positive news around trade, with the US and China due to start face-to-face talks in Shanghai next week. Both sides offered goodwill gestures: the US loosened restrictions on Huawei and China raised the prospect of increased agriculture purchases from the US.
Back in the UK, however, the National Institute of Economic and Social Research (NIESR) said on Monday that the UK could already be in recession and is increasingly vulnerable to economic contraction as the Brexit deadline approaches. The warning was based on economic data already released that shows second-quarter economic growth essentially flat. As if to hammer home the point, the CBI reported on Tuesday that in the three months to July, UK manufacturing output declined at the fastest rate since the financial crisis. In its latest Industrial Trends Survey, 19% of firms said output was up compared to 30% who reported that it was down, giving a net balance of -11, the worst reading since July 2009. Indeed, every one of the seven measures of activity, as measured by the survey, including output, new orders and employment, all hit multi-year lows over the past three months.
On Thursday, the CBI also reported falling retail sales for the third consecutive month. Its balance of retailers reporting rising sales against those reporting falling sales hit -16 in the month to date, a better reading than June when the balance was -42, but still deep in negative territory and marking the longest period of decline since 2011.
The same day, the International Monetary Fund (IMF) downgraded its forecasts for global growth, citing the risks to confidence posed by any escalation in the US/China trade war, the threat of tariffs on cars imported into the US from Europe and Japan, and a no-deal Brexit. The IMF said all these possibilities could “sap confidence, weaken investment, dislocate global supply chains and severely slow global growth below the baseline”. It has forecast growth of 3.2% in 2019, down from 3.3% forecast in April, and 3.5% in 2020, down from its previous estimate of 3.6%.
Back in the UK, there was mixed news on the property market. According to data released this week by HMRC, the number of homes sold in Britain dropped by 16.5% in June compared to the same month last year. However, UK Finance, the trade body representing British banks, released data this week showing that mortgage approvals had hit their second-best level in two years in June, rising to 42,653 from 42,407 in May. Economist Samuel Tombs of Pantheon Macroeconomics, said the level of mortgage lending over the last three months shows that households remain confident.
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