UK: On the Slide? - ING
James Knightley, Senior Economist at ING, suggests that the concerns
about what Brexit could mean have already hurt UK sentiment, but there
is growing evidence that the broader economy is now feeling the pain.
“Consumer and business confidence readings have been coming under downward pressure just as the Brexit debate has started heating up. So far, the indicators are suggesting that most of the hit is to how households and businesses perceive the outlook for the economy over the next twelve months. However, a recent Deloitte’s survey indicated that business perceptions regarding “risk”, such as hiring new workers or embarking on capex are also deteriorating. There has been some evidence to suggest that employment growth has slowed and with 1Q GDP coming in at 0.4% QoQ versus 0.6% in 4Q15, there are hints of a loss of momentum.
Yesterday’s UK manufacturing purchasing managers’ index added to the sense of slowdown. It surprisingly dropped back into contraction territory, coming in at 49.2 in April versus a downwardly revised 50.7 reading for March. This was worse than the 51.2 consensus expectation and was the weakest reading since March 2013.
Should the UK vote to stay in the EU then we believe that activity will bounce back as the outlook clears in an environment of relative sterling softness. However, should the UK leave then the activity story is expected to weaken further and likely prompt BoE policy easing with sterling coming under significant selling pressure.”