March 9, 2018

News in Charts: Fathom’s UK Economic Sentiment Indicator limps into the New Year

by Fathom Consulting.

Weighed down by Brexit-related uncertainty and the sterling-induced real income squeeze, UK GDP growth was its weakest in five years in 2017. Fathom’s Economic Sentiment Indicator, which distils information from numerous consumer and business surveys into one gauge of underlying economic activity, suggests that this softening is not over yet, with the New Year getting off to a bad start.

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Indeed, February’s pickup was insufficient to unwind January’s fall, with corporate confidence, specifically that related to business prospects, deteriorating. It may be that hopes associated with December’s agreement to progress to the next stage of the Brexit talks have begun to ebb. Meanwhile, consumer sentiment continues to hover at unusually low levels, with the February release of GfK’s Consumer Sentiment Index continuing to point to soft household consumption growth, as shown in the chart below.

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As we explained in more detail to our clients in January, with net trade unlikely to offset domestic demand weakness (it subtracted from GDP growth in all but one quarter last year), we expect GDP growth to soften further from here. If we are right, economic activity will slow to below the pace that the UK Monetary Policy Committee regards as the “speed limit”, meaning that a rate hike in May could well be off the cards.

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