You break it, you pay for it

So we’re a month into the post-EU referendum period and the lights have not gone out. Yes, we’ve gone through a pretty shaky political patch for the Conservative Party leadership which was unnerving to say the least. And the Labour Party is either nearing the point of exuberant rebirth or self-immolation depending on your perspective. But things seem somewhat more stable than they did a month ago.
From an economic data perspective we are still an essentially pre-data period, or at most a period of anecdata, collected/ assembled with various levels of formality. The Economist put together a piece about data it had scraped from the web which was interesting, but really illustrated how little data we really have. 
We have seen data from a few forward-looking surveys come out, the sort of which market-folk like me digest when trying to understand likely developments at a macro level. They are, by definition, snapshots taken at a point in time. 

Here is a quick recap of what we have seen:

  • The GfK consumer survey data, which was dire. However, this was taken during the period of peak national political insanity. So perhaps it should be taken with a big pinch of salt.
  • The RICS survey fell sharply, and tends to lead house prices by around six months, a point made by Sam Tombs here:

  • The Bank of England Agents’ summary of business conditions which was widely interpreted as being more positive, painting a picture as it did of firms somewhat in shock but trying to get on with life. This bullet point is a fair summary of the post-Referendum part of the report, but you might as well read the whole report. It is only three pages in total, so shame on you if you discuss it without having bothered to read it.

  • The Markit survey of Purchasing Managers (the UK PMI) released today, which was pretty awful, although contained an important caveat from its chief economist Chris Williamson that signs of confidence began to lift later in the month as the new government took shape.

  • The CBI Business Optimism index fell sharply, although the orders component was decent and the survey was taken between 27th June and 13th July (recall that May became PM on 13th). [This bullet added 25th July.] Here’s Samuel Tombs again:

But to reiterate. This is not hard data. And without hard data we risk projecting our priors onto the straws in the wind that so far exist, as Tim Harford wrote most eloquently here
And so it is perhaps natural to see a variety of commentators seizing on individual bits of information that *proves* that the UK is either booming or collapsing. Perhaps the whole thing looks rather emotional to the outside observer, and perhaps it is.
But the truth is that we simply don’t know. We each have guesses. Furthermore, we can infer from market prices the degree to which our guesses are more or less consensus. But we don’t know and we won’t know (unless the bottom falls immediately out of the economy) for a little while.
But the reason I’m writing this blog is that I’ve started seeing snippets of commentary from folks who supported Leave that I find somewhat disturbing. I’m happy for them to point to data that they reckon proves a UK boom. I’m happy for them to change their mind and say that they were wrong (although would be surprised if this should happen since we are still in the pre-data period). But I am not happy for them to say that the economy was already broken before the Referendum. And this is what I’ve started to see sneak in.

Similarly, I’ve seen folks who supported Remain appearing to relish the bad pre-data that we’ve seen, perhaps seeing it as enhancing their reputation for analysis. This is really distasteful. There is nothing to celebrate about a downturn.

I was one of the 288 signatories of the letter organised by Paul Levine, Tony Yates and Simon Wren-Lewis.  I stand by its wording, but I very much hope that I’ve been wrongly pessimistic on the impact on the UK of voting to leave the EU. The prospect of eating humble pie is wildly attractive because I want the UK economy to blossom. In fact I am working bloody hard to play my part in ensuring that it thrives. Economic recessions are frankly awful. They carry a distinctly human cost.

But if it does turn out that we have scored an economic own goal by voting to Leave I’m simply not having those who belittled the prospective economic costs of Leaving wash their hands of their responsibility and telling the rest of us that the UK economy was already broken. It wasn’t.

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One thought on “You break it, you pay for it

  1. The true and enduring economic impact of Brexit can be assessed accurately only in perhaps 10 years time. The ravenous desire to pass judgement on Brexit based on surveys of consumer and business confidence just days after the vote is ridiculous.

    The best real time measures of actual economic performance we have are daily credit card billings. To quote directly from American Express: “Our U.K. business constitutes 3% to 4% of worldwide billings and it has been growing in excess of 10% in recent quarters. We did see a noticeable slowdown in this growth in the first several days immediately after the Brexit vote. But that growth has since rebounded to its prior strong levels.” And Visa: “The business is performing pretty much exactly as we expected, if not a little better. And we’ve seen some – it’s very early to assess the impact of Brexit. We haven’t seen much change. We’ve seen other than the exchange rate impacts, we’ve seen some modest impacts on the cross-border business, as you would expect. Inbound commerce into Europe and the UK in particular is picking up as a result of the exchange rate moves.” Give or take this sounds like business as usual.

    Moving the debate away from a bitter and obsessive focus on short term “noisy” data points to a meaningful and inclusive conversion about how best to position the UK economy for the future is essential. We are in the first game of the first set the important part lies ahead.

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