Archives: Blog Brexometer

The world sneezes and the UK catches a cold

Last month we warned that the record level of the UK’s well-being needed to be re-visited once the impact of the coronavirus had been assessed… and look what has happened since! The outbreak has dominated the media and infected business confidence around the world. It is still early days in the development of the virus, but already the Accountagility Index (AAX) has lost 41 basis points this month, falling to 5.44, from a peak of 5.85 in February. Any score above 5.00 is positive, so overall the UK is still doing well. The AAX is still the only measure of the UK’s overall health, both economic and political.

See below for more detailed analysis, or watch an interview with our Brexometer guru David West laying out the context.

So what factors caused the Index to go down this month?

The overwhelming negative factor was the drop in the UK markets, with both FTSE 100 and FTSE 250 (mid-caps) falling by around the same ratio. This one factor has dominated the Index, accounting for most of the downward change. All of this is down to a loss of confidence in the global economy to continue with Business As Usual over the coming months. Demand in Asia, lengthening supply chains, and reduced domestic consumer demand in areas such as travel and entertainment, are all cited as contributory concerns. Inflation also rose sharply, and may be impacted by supply side factors and consumer stockpiling. GDP has held up and was set for a positive 2020 outlook, but this is now compromised, in the short term at least.

What were the other factors?

There were positives too; sentiment rose, due to the lifting of uncertainty from Brexit and from a clear General Election result. For the first time in ten months, all three UK sectors are now in the positive (above 50 out of 100), with the Construction sector showing the strongest rebound. The UK debt ratio dropped below 80% to record its most positive level since August 2016. That’s a good platform for dealing with the turbulence ahead.

All COVID-19 news has rather put the important UK-EU trade negotiations into the shade. Over recent weeks, the two sides have set out their stalls and warned each other of the dire impacts of failing to agree a deal. To get a deal done by the target date of the end of this year, all the key negotiating items need to be agreed at a high level by June. We await this date with bated breath but there’s no great expectation that such a timetable is feasible. Perhaps a positive mind-set in these talks could go viral too!

How is the economy looking?

It’s also been impacted by the outbreak. In pure economic terms, the Index fell 55 basis points from 6.07 last month, to 5.52, a large fall but still well into the black. Over the course of the next few years, HS2 going ahead will have a positive impact on the UK, especially in the Construction sector. Good news amongst the gloom.

What happens next?

The next Brexometer measurement will be taken early in April 2020, when a lot more about the Coronavirus on the UK economy will be known. We will also see how the two sides are getting along with the EU trade negotiations. How will UK investment and confidence perform in the face of these factors? How will other factors affect the Index? How will the economy react? Keep following the Brexometer to find out.

Join in!

There is a free competition open to everyone, to predict each month’s score. This month’s winner is our very own Tom Crosby, who came closest to the correct score with his prediction. Well done Tom! It was a difficult month to forecast, but you have won the special prize, a Brexometer tenner with the serial number starting AA20 to mark the year 2020. Next month would you like to join in? The Index will be measured again early next month, on 9th April, just ahead of the Easter break. We have yet another special Brexometer tenner to win, with the serial number AA01, which is super rare to say the least. The winner will also receive a framed certificate to show off their awesome punditry to colleagues and friends. Just email with your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

Divorced but unsettled, a bittersweet year awaits

The UK left the EU on Friday 31st January 2020, with mixed emotions, and eleven months of colossal negotiations on a trade deal ahead. Business is also conflicted, with many concerns, but overall the reduction of political uncertainty has fostered a return to optimism.

As a result, the Brexometer score this month has further consolidated its recent gains, with the Accountagility Index (AAX) rising twelve basis points to 5.85, from 5.73 last time. This is an all-time high for the Index, which was created in June 2016.

See below for more detailed analysis, or watch an interview with our Brexometer guru David West laying out the context.

So what caused the Index to go up this month?

There were a few key factors making moves last month, and the most positive was business sentiment. The Services sector led with a large rise of 39 basis points, based on high confidence, new work flowing in and renewed investment. The Manufacturing sector shook off its downturn to record a neutral score and even the poor old Construction sector showed signs of recovery, especially in house-building. A couple of caveats before we get ahead of ourselves – the level of demand from Europe is understandably soft, given the Brexit situation, and the readings were taken before any impact of the Coronavirus had been assessed. Other changes in January included a small rise in growth and a gentle drop in inflation.

What were the other factors?

The key issue causing downward pressure on the Index was the sabre-rattling between the UK and EU politicians ahead of the forthcoming trade negotiations. Two very different visions for the deal have been set out, and at this stage there is no sign of compromise. Hence the likelihood of a deal being agreed in principle by the end of July is remote, and the discussions being extended into 2021 has become a real possibility. Meanwhile there was some easing off in the markets and in the value of the pound.

How is the economy looking?

Actually it’s looking rather splendid. In pure economic terms, the Index rose 24 basis points from 5.83 last month, to 6.07, an all-time high since the formation of the Index. There is even still room for improvement if sentiment and investment continue to improve. As the Government has given the green light to the massive HS2 project, will this bring a sustained and positive contribution to the Index?

Is it all over for the Brexometer too?

You may be thinking that the Brexometer no longer applies because the UK has left the EU now. But in reality we are in a transition period until (at least) the end of this year. So Brexometer fans need not fear, we will be bringing you the Index and the competition for the whole of 2020.

What happens next?

The next Brexometer measurement will be taken early in March 2020, when the initial impact of the Coronavirus on the global economy will be known, and the effect of HS2 will have been felt. We will also know a lot more about the EU trade negotiations. Will UK investment and confidence continue to rise? How will these other factors affect the Index? How will the economy react? Keep following the Brexometer to find out.

Join in!

There is a free competition open to everyone, to predict each month’s score. This month’s winner is our very own Tanya Gardiner, who came within one basis point of the correct score with her prediction. Well done Tanya! You have won the special prize, a super-rare Brexometer tenner with the serial number starting AA. Next month would you like to join in? The Index will be measured again early next month, around 9th March, and we have yet another special Brexometer tenner to win, with the serial number AA20, to mark the 2020 year. The winner will also receive a framed certificate to show off their awesome punditry to colleagues and friends. Just email with your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

New decade, new Britain?

The UK emerged from its teens into a new decade this month, on a wave of optimism about the future. The removal of the political turmoil and the alleviation of Brexit uncertainty have added to the typical feel good factor at the start of a new year. Sentiment is up and there is a widespread view that Britain is at a turning point.

The Brexometer score this month has consolidated its dramatic gains from last month, with the Accountagility Index (AAX) rising just five basis points to 5.73, from 5.68 last time. This still represents an all-time high for the Index.

Some of the leading indicators are even more positive, with all three key sectors of the UK industry expecting 2020 to be a positive year for business.

See below for more detailed analysis, or watch an interview with our Brexometer guru David West laying out the context.

So caused the Index to go up this month?

Actually most factors were subdued last month, because the effect of the election in mid-month wasn’t fully reflected. The biggest impact was observed by the upward growth of inward investment, up almost 4% to a new high. There was a further gain for the FTSE 100 (offset by a small fall in the mid cap FTSE 250 index) and movement towards the EU exit date of 31st January 2020 also helped clarity.

What about the economy?

There were risers and fallers in the economic scene over the past month, but with the nation’s focus on the Election, these factors cancelled themselves out. In pure economic terms, the Index rose four basis points from 5.79 last month, to 5.83. Inflation rose a fraction, the Pound fell back a little, the debt ratio moved up a tick. Sentiment actually fell, but the story is incomplete since most of the data was compiled before the General Election on the 12th of last month. Services sentiment rose, but both Manufacturing and Construction are still in a deep downturn. The forward indicators are better though; even in the Manufacturing sector there is a net +33% expectation of growth in 2020. The jobs picture is fascinating, with London and the North being stronger, and the South seeing weakness. The government’s review of the IR35 legislation will be a factor in impacting jobs data this year.

Any predictions for the coming year?

Well yes there are a few… some easy ones first. The Conservatives’ large majority will create predictability, and allow them to pursue their agenda. It will also provide a better negotiating platform in the EU trade talks. Expect an ongoing argument about the deadline imposed by the UK Exit Bill of 31st December 2020, with the discussions going right down to the wire, and some items being shelved for a second round of negotiations in 2021. One of the keenest fought agenda items will be UK fishing access. Inward investment will continue to rise through 2020. Government investment will boost the Construction sector, and bring it up from the deep doldrums where it is sitting today. UK GDP growth will blip upwards during the year, but so will the debt ratio. Inflation will continue to fall in the first half, as the pound strengthens a little. The all-time high in employment will continue and the jobs market will tighten, putting pressure on inflation in the second half of the year. Politically, the calls from north of the border for Indyref2 will not go away.

What happens next?

The next Brexometer measurement will be taken early in February 2020, when the UK will almost certainly be out of the UK and entering a new era. By then, will the lines of battle for the trade talks with the EU be drawn up? How will the global picture be affecting the UK, in terms of the Middle East, oil prices and the ongoing US-China trade standoff? Will there be any movement in decisions around UK infrastructure, including the key one on the future of HS2? How will the economy react? Keep following the Brexometer to find out.

Join in!

There is a free competition open to everyone, to predict each month’s score. This month’s winner is our very own Jack Murray, who came closest to the actual reading with his prediction. Well done Jack! You have won the special prize, a super-rare Brexometer fiver with the serial number starting AA01, that commemorates the first month of the new decade. Next month would you like to join in? The Index will be measured again early next month, and we have yet another special Brexometer tenner to win, with the serial number AA, one of the first new plastic £10 notes to be issued. The winner will also receive a framed certificate to show off their awesome punditry to colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

A clear General Election result takes the Brexometer to new heights

One of the most dramatic movements in the Brexometer saw the Accountagility Index (AAX) rising 69 basis points to 5.68, from 4.99 last time, following the news of a sweeping Conservative victory in the UK General Election.

Whilst the economic score was more or less unchanged from November, the political news caused the Index to rise to a record high. This movement is the second largest recorded since the Brexometer measurements started in June 2016.

See below for more detailed analysis, or watch an interview with our Brexometer guru David West laying out the context.

So, what caused the Index to go up this month?

The key influence was the removal of uncertainty in the UK political arena, with an 80 seat majority creating a level of stability not seen in recent times. Whilst there are new factors to consider for the future, such as the trade talks with the EU and the friction that will occur after the SNP’s successes, there is little doubt that the UK will exit the EU before 31st January 2020.

What about the economy?

There were risers and fallers in the economic scene over the past month, but with the nation’s focus on the Election, these factors cancelled themselves out. In pure economic terms, the Index rose one basis point only from 5.78 last month, to 5.79. Inflation fell, the Pound rose, the markets climbed a little over the month, but government debt rose slightly and sentiment fell, with activity in the important Services sector falling below the parity level of 50.0 (to 49.3). A similar fall was observable in the Manufacturing sector, whereas construction rallied albeit from a low base. Overall sentiment was still negative ahead of the result, with Brexit and electoral uncertainty the chief culprits.

What happens next?

The next Brexometer measurement will be taken on Friday 10th January 2020, when we will all be in a New Year of a new decade. By then the impact of the Election will be better understood, as will the timetable for exiting the EU. Or will the UK have passed the legislation by then? What new announcements will Boris Johnson have made? How will the removal of uncertainty affect business confidence? What new developments will occur in the discussions of the trade talks with the EU? Will Nicola Sturgeon have made a move regarding indyref2? How will the economy react? Keep following the Brexometer to find out.

Join in!

There is a free competition open to everyone, to predict each month’s score. This month’s winner is our very own Hyunsuk Yun, who came closest to the actual reading with his prediction. Well done Hyun! You have won the special prize, a Brexometer tenner with the serial number starting AA13, that commemorates the date of this reading, Friday 13th December 2019. Next month would you like to join in? The Index will be measured again on Friday 10th January 2020. Do you have 20-20 vision? Because of the challenge of getting your prediction correct in the next decade, we have yet another special Brexometer note to win. This time though, it’s a five pound note which has the serial number AA01, to mark the first month of the new decade. Another rare and prized note, that is the most sought-after prizes that we have offered. The winner will also receive a framed certificate to show off their awesome punditry to colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

Beware Friday the thirteenth! Index gets jumpy ahead of a date with destiny

Good economic news pushes Brexometer to the best of the bad

We had the fearsome prospect of a Halloween Brexit, but now we have something just as spooky. The result of the UK General Election will be known on Friday 13th December, following the polling date of Thursday 12th. You couldn’t make it up. And it will almost certainly be scary for millions of Britons, given the polarisation of UK politics. This date won’t be going away either. Be scared, be very scared.

The mood is spreading. Even the Brexometer got jumpy this month, with the Accountagility Index (AAX) rising 23 basis points to 4.99, from 4.76 last time. The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative, so we remain in the red rather than in the black this month, but by the slenderest of margins.

In the next few days, I’ll be posting a Video Blog that will lay out the context of the Brexometer, and an insight to what the immediate future might hold – watch this space.

In the meantime, what caused the Index to go up this month?

There were two highly positive factors at play since last time. 1) the speedy conclusion of the Brexit negotiations between Boris Johnson’s team and Michel Barnier, the EU Chief Negotiator, which removed the worst risk of a no deal exit. 2) The extension offered by the EU until 31st January 2020 has pushed the date backwards, and the temperature of the relationship improved.

Meanwhile sterling rose in relief and so did the FTSE 100. In fact the other key stock market index, the FTSE 250 representing smaller firms, rose by 6% over the past month. Despite being still below the median mark of 50, the PMI Index rose to 48.7, being helped by the Services sector and some re-stocking ahead of the (now deferred) Brexit date of Halloween. We correctly predicted this rise last month. It is unlikely to rise further during a month, since political uncertainty will deter even hardy optimists from investing.

Were there any falling factors?

Very much so. Although the UK economy grew again during Q3, by 0.3%, this is after a shrinkage during the prior Quarter. The performance of the UK over the last 12 months is a net growth in GDP of only 1.0%. Amidst signs of workforce shedding across most industries, the employment figure, so buoyant over past years, fell back slightly. The only bright spots, as far as this area of the economy is concerned, came from reports of hiring from service providers and a tightening of wages in the Services sector generally. The lack of political stability caused by the Election has weighed on the Index too, as one might expect.

What else has been happening?

For economics junkies, the Index for economic factors only, rose 22 basis points from 5.56 last month, to 5.78. Surprising to many perhaps, but then again the longer-term signs remain extremely downbeat, and probably will until the Brexit uncertainty clears. It is heading back towards the all-time peak of 5.93 in April.

What happens next?

The next Brexometer measurement will be taken on Friday 13th December, immediately after the result of the General Election is known. It will then be released on Monday 16th December. The starting bell of the campaign has sounded, and already there are many conflicting signs and stories. Will it be a re-run of the EU Referendum, as some are forecasting? Or will be become a stramash of hundreds of topics, policies, assertions, angles and points, difficult to follow and impossible to call? Meanwhile, will the campaign affect the economy? How will the Index react? Keep following the Brexometer to find out.

For those who want to understand the impact of the two leading parties’ policies and manifestos, we will be issuing a special Brexometer assessment of the Labour and Conservative policies, at the end of November, on LinkedIn. It will summarise how each set of policies will influence the Brexometer score as at December 2020, in one year’s time, in a dispassionate and balanced way. A must read for all forecasters, planners and political junkies. If you’re not already, please follow me.

Footnote for nerds on Friday the thirteenth

Did you know that Friday 13th has only been seen as bad luck since the start of the 20th century? Today’s meaning can be traced back to the eponymous movie of 1933 where Big Ben started winding backwards on that fateful day. It was popularised more recently by Dan Brown in his novel the Da Vinci Code. If you share a fear of this date you are suffering from paraskevidetriaphobia. Now you know!

Deal or no deal? We’re holding our breath…

But the UK is actually doing okay. Whilst Parliament, the Government, the legislature and the EU have been contributing to a feverish and emotion-charged few weeks, the UK economy has actually improved. What is going on, you ask? And what on earth is going to happen next? It’s tiring enough just reading the headlines!

Despite the political twists and turns, the Accountagility Index (AAX) rose by 4 basis points this month, from 4.72 in September to 4.76 The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative, so we remain in the red rather than in the black this month, as indeed we have since May (the month not the leader!).

So what caused the Index to go up this month?

There were two highly positive factors at play since last time; inward investment rose by an astonishing 9% to an all-time high, whilst inflation fell. In the case of the CPI (Consumer Price Index), there was a healthy fall of 40 basis points to land at 1.7%, but the RPI also showed a fall of 20 bps, to 2.6%. A note of caution though, friends. Both of these factors are essentially lagging indicators, and do not provide a sound basis for future assumptions. There are some malign influences at work that will move inflation upwards over the coming weeks, mainly the weakness of sterling, which is already impacting input costs including fuel. The other positive contribution was made by the fall of 1.5% in the UK debt ratio, which is heading back down towards 80% quite quickly.

But there was plenty of bad news too, wasn’t there?

Absolutely! Economically there were modest falls in the markets and in sterling. The biggest worry is what sentiment across all three key UK sectors is telling us. Construction is stuck in a ditch, and won’t be dug out for a few months, by the look of it. The important PMI Index records a confidence score of 43.3 (out of 100), and is seeing ten year lows in employment, new orders and building activity. Even the traditionally reliable Services sector fell into the red, with a score of 49.5, the worst since the post-Referendum shock, and is shedding workers through non-replacement of leavers. The surprising positive was in Manufacturing, which blipped upwards after 4 months of falls. This was due to Brexit preparations, similar to the rise we observed ahead of the last Brexit date of late March earlier in the year. This time the advanced ordering and stocking up is more modest, but it is likely that this trend will sharpen this month and protect the UK from the worst of fall-out from the (current) 31st October exit deadline.

Of course the political considerations were pretty much all negative. Parliament was re-called after the legal judgment declared the extended proroguement illegal, but there has been no tangible progress in the Commons chamber, as far as the populace can see. There is no majority in Parliament, but no immediate Election either, and the temperature of the Brexit negotiations is hardly encouraging. The likelihood of a No Deal exit is still high, and expectations are similarly elevated for a General Election being called before Christmas.

What else has been happening?

For economics junkies, the Index for economic factors only, rose by a hefty 15 basis points from 5.41 last month, to 5.56. This is encouraging, and heading back towards the all-time peak of 5.93 in April.

What happens next?

The next Brexometer release will be in early November, after the Halloween date that currently represents the UK’s departure from the EU. Will that happen? How can Boris prevent a further extension, as he appears committed to do? Will he write the letter to the EU asking for another three months, or will it be a judge? How will the EU reply? If the UK does leave, will planes fall out of the sky, will trains run on time and will Kent experience the world’s longest ever traffic jam? How will all of this affect the economy? How will the Index react? Keep following the Brexometer to find out.

Join in!

This year we have set up a competition open to everyone, to predict each month’s score. October’s winner is our colleague Mahir Khalid, who won this month’s competition with a totally precise forecast. Well done Mahir! He has won the special prize; a Brexometer tenner with the serial number starting AA, one of the first new plastic ten pound notes ever printed. Next month would you like to join in? The Index could be heading anywhere, so it will be an open field. Because of the seismic events that could drive the Brexometer haywire over the coming month, which will make predictions a real challenge, we have an amazing and even rarer Brexometer tenner to win, which has the serial number AK47. It is a very rare and prized note and completely appropriate for the times we are living through! The winner will also receive a framed certificate to show off their awesome punditry to colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

Westminster turmoil drives Index down

The opposition showed their teeth over the past fortnight, by allying to take control of the Parliamentary agenda and pass a law extending Brexit by three months. Remainers have triumphed, pushing the exit date out to 31st January 2020. The Conservative party has lost its majority and cannot even call a General Election, to attempt to resolve the issue. Notwithstanding this, Prime Minister Boris Johnson appears to be determined to leave by 31st October 2019.

The political turmoil has driven the UK southwards. The Accountagility Index (AAX) fell by 18 basis points this month, from 4.90 in August to 4.72 this month. The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative, so we remain in the red rather than in the black this month.

So what else caused the Index to fall this month?

The adjustment of GDP growth to 1.2% now puts the IMF and official UK figures in full alignment. This has been a key downward factor. Sentiment has fallen again, with only the normally reliable Services sector with its head above water. Services companies reported slow and sluggish conditions, with delays in orders from European clients a factor. In Construction, there has been a loss of momentum, with commercial work being the lowest performing area of activity. Here the business expectations for the year ahead are at the lowest level since 2008. In Manufacturing, there has been a slowdown in new work and the lowest sentiment figure since mid-2012.

Is there any good news at all?

Well yes actually. The UK debt ratio has improved, the Pound has risen since one month ago, and whilst the FTSE 100 is flat, the smaller companies as represented by the FTSE 250 have done rather well. On top of that, employment is showing ongoing resilience and in Manufacturing there is still a net +27% of firms expecting output growth over the next 12 months. Other factors are stable this month.

What else has been happening?

For economics junkies, the Index for economic factors only, fell by 8 basis points from 5.49 last month, to 5.41. Not bad, but the all-time peak was 5.93 in April.

What happens next?

Parliament is now adjourned (the technical term is prorogued) until 14th October, so the October Brexometer will be released before then. It is certain that there will be more confusion whilst the politicians are in their conference season, because there are several legal cases underway. There are challenges to the legislation to extend Brexit and to the proroguement of Parliament, to name but two. So there will be no lack of political activity and debate. But what will happen over the next month? Could there be an accommodation between the UK and the EU? And what will happen to the UK economy as these events unfold? How will the Index react?

Keep following the Brexometer to find out.

Footnote

This year we have set up a competition open to everyone, to predict each month’s score. August’s winner is our very own leader Robert Gothan, who won this month’s competition with a precise forecast. Well done Robert! He has won the special prize, a Brexometer tenner with the serial number starting AA, one of the first new plastic ten pound notes ever printed. Next month would you like to join in? The Index could be heading anywhere, so it will be an open field. There is another Brexometer tenner to win, together with a framed certificate to show off your awesome punditry to your colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

Bojo has got his mojo working

Signs of an upspring from a baby Boris bounce

Early days for the UK’s new leadership team, and Boris Johnson is not everyone’s cup of tea, but there is a new momentum and style coming from Downing Street. The new Prime Minister is marmite; you love him or hate him, and this will have implications on further turbulence in Westminster over the coming weeks, as we count down towards the latest Brexit deadline of 31st October 2019. What can be said is that the Cabinet is united for the first time since the Referendum, and that there is a revived sense of purpose and activity.

Despite the welter of conflicting information and news, the Accountagility Index (AAX) has actually moved upwards this month, from 4.86 in July to 4.90. Only four basis points, but a surprising rise. The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative, so we remain in the red rather than in the black.

Recent events have shown the leakage between economic and political factors, and the Brexometer is the only measure that illuminates the connections between both. What a shame that it will have to come to an end if Brexit actually does occur in two months’ time!

Underneath the small change in the Brexometer score this month, there have been some big changes in individual factors that make up the score. We explore them here.

So what were the key negative changes this month?

There were four substantially negative elements over the past month. The biggest faller was the markets as both FTSE 100 and 250 fell over the past weeks, despite the boost that might have been expected from a lower currency level. The pound fell significantly, and the expected ongoing weakness of Sterling may be both a blessing and a curse over the coming months. On the down side, it will stoke inflation, and we are already seeing some of this; the benefit of a weak currency is the attractiveness of UK based goods and services, which is starting to be visible in the Services order books from overseas. There was further erosion in the relationships between the EU and UK leaders, with the temperature sinking into the chilly end of the scale. Finally there is an increased probability of a General Election before the end of this year. The AAX is estimating an 80% likelihood of this.

What about positive signals?

The biggest riser this month is sentiment, with the downward spiral in the key Services sector being halted. This sector saw the fastest pace of business activity growth since last October. There has been a rebound in new work, much of it from overseas, spurred by the weakness of the Pound. There is an emerging expectation of a Boris boost as a result of the greater clarity around the path to Brexit. In Construction, there was no change in the confidence Index, and there is no sign yet of this sector feeling the effect of political developments. In fact there is a continuing concern about Brexit, and the likelihood of a no-deal exit. Manufacturing confidence rose, but from a very low level. On the other hand, there will undoubtedly be another rise in this sector from stockbuilding ahead of the October exit date. You may recall that Manufacturing saw a large boost in Q1 this year ahead of the original date of late March. It could be another story of déjà vu all over again.

There has also been a rise in the Index coming from the greater political direction and leadership described above, and from the renewed focus on preparations for international trade deals. Finally inflation has dropped a fraction, but the debt ratio rose a smidgeon.

What else has been happening?

For economics junkies the Brexometer score for the economy only, is 5.49 this month, down 6 basis points from its June level of 5.55, so still showing some resilience despite the prevailing conditions. The all-time peak was 5.93 in April.

What happens next?

Before the next Brexometer, Parliament will be recalled, and in the meantime there will be plenty of exciting political developments and lots of dramatic headlines. Will MPs succeed in preventing a no-deal exit? Will the EU come to the party and enter into meaningful negotiations? Will Boris call an election? What will happen to the UK economy as these events unfold? Will things become clearer, or murkier? How will the Index react?

Keep following the Brexometer to find out.

Footnote

This year we have set up a competition open to everyone, to predict each month’s score. August’s winner is Marcus Page, Accountagility’s Product Director, who used his strategic skills to hit the nail on the head with a precise and accurate forecast. Well done Marcus! He has won the special prize, a Brexometer tenner with the serial number starting AA, one of the first new plastic ten pound notes ever printed. Next month would you like to join in? The Index could be heading anywhere, so it will be an open field. There is another Brexometer tenner to win, together with a framed certificate to show off your awesome punditry to your colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

The Index is steady as we watch the leadership contest unfold

The UK waits… that’s what it does

The leadership tussle between Boris Johnson and Jeremy Hunt is entering its final throes, but whoever wins will have a series of challenges to face; convincing new EU leaders that a no-deal Brexit is real, getting Parliament to acquiesce and accept that the UK is leaving on the 31st October; avoiding a General Election; and mobilising the nation behind the exit. His most important task, however, based on the opinions of industry leaders, is “the urgent need to restore confidence” in the economy and in political decision-making.

Meanwhile the Accountagility Index (AAX) fell just ONE basis point to 4.86. Last month it was 4.87 when it had dropped by 23 points in a single month. So this month it’s steady as she goes. The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative, so we are in the red rather than in the black this month.

Despite the lack of movement in the overall score, there have actually been some big movers and shakers in the factors that make up the score. Let’s dig into these shall we?

So what were the key changes this month?

There were many negative elements in June. The biggest was sentiment (see section below), but there was a significant drop in inward investment, the pound fell back, and there was a small increase in the UK debt ratio. Based on our assumption of a 75% probability of a Boris Johnson premiership, the likelihood of a no-deal Brexit has increased this month.

As to sentiment, it has been a worrying month for the Construction and Manufacturing sectors. Business activity, new work and output all fell at the fastest pace for ten years across the Construction sector, with Brexit uncertainty widely quoted as the culprit. Commercial work was worst hit, but civil engineering also suffered a sharp decline. Manufacturing fell for the third consecutive month, with confidence at its lowest ebb since early 2013. The key reason was the unwinding of the stockpiling ahead of the original exit dated in March, but on top of this headwinds in the global economy added to the impact, with exporters reporting declines in orders from the US, Europe and Australia. Despite this situation, manufacturing companies are still confident about the medium-term future, with a net 30% forecasting increased output in twelve months’ time. In the key Services sector, things are flat, with falling backlogs of work. And yet jobs are still growing due to long-term business expansion plans, and people are not moving from existing roles due to the general uncertainty prevailing. Overall the sentiment figures suggest that the UK economy contracted by 0.1% in the second quarter, and there is the wider issue of productivity. More on that anon….

What else has been happening?

There have been positive points. The key one has been the strong bounce in the market with both FTSE 100 and 250 rising strongly. A Boris Johnson victory would increase the chances of both an exit on 31ST October and an early US-UK Trade Deal. Inflation blipped lower, too. For economics junkies the Brexometer score for the economy only, is 5.55 this month, down 5 basis points from its June level of 5.60, so still showing resilience despite the conditions. The all-time peak was 5.93 in April.

What happens next?

Before the next Brexometer, we will know our new Prime Minister. Parliament will have another go at preventing a no-deal exit. There will be a new Cabinet formed. And then all the politicians go on holiday. So how will industry react as these events unfold? Can the UK economy hold up? Will Boris win? Will we get some clearer political direction? How will the Index react?

Keep following the Brexometer to find out.

Footnote

This year we have set up a competition open to everyone, to predict each month’s score. You can win a special prize, a Brexometer tenner with the serial number starting AA, one of the first new plastic ten pound notes ever printed. Next month would you like to join in? The Index could be heading anywhere, so it will be an open field. There is another Brexometer tenner to win, together with a framed certificate to show off your awesome punditry to your colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!

The next leader has it all to do

The Index falls heavily as industry goes into a wait loop

After five months of inch-by-inch climbs, the Accountagility Index (AAX) fell 23 basis points to the below par score of 4.87. Last month it was 5.10 after a series of increases from the December low of 4.79. The Index records UK political and economic health in a score out of ten. Any score below 5.00 is negative.

After a lull, there is a storm of topics to talk about this month. Theresa fell on her sword, and now there is a leadership contest for her replacement that is so crowded that the candidates couldn’t fit into ten red telephone boxes. The contest will come alive this month with Conservative MPs narrowing the field down to just two candidates; then the party members vote for their favourite. The new leader should be announced in August. This highly politicised electioneering phase is unlikely to be good for the Brexometer, since it prolongs uncertainty which has held the Index back since the Brexit vote in June 2016. The contest has been given extra spark because of the poor showing of the main two Parties in the Local and European elections, and the rapid rise of Nigel Farage’s Brexit Party. It was only formed on 12th April, but was the largest single Party in the European elections.

So what caused the large fall this month?

The ongoing political uncertainty did have an impact, mainly because several of the leadership candidates are prepared to countenance a No Deal Brexit, and there is now a period of minimal leadership of the country. But economic factors were the key in dragging the Index southbound. Finally the economics has caught up with the negative political scene, and a nasty combination of increasing inflation, dropping Pound, sliding markets and a collapse in sentiment, are to blame for the downwards trajectory.

In the Construction sector, there was a sharp decline in output, especially in civil engineering, which has seen the longest period of decline since 2013. Residential work expanded but at a subdued pace, so even house building is being affected. Manufacturing saw the first negative score since the Brexit Referendum. There is undeniable evidence that the inventories were built up in Q1, ahead of a potential disorganised exit, and that now there is no urgent need to refresh orders. The weakness has been confined to intermediate and investment goods, supporting the view that stockpiling occurred in Q1. One shaft of light though…. There is a 42% positive sentiment (49% positive versus 7% negative) that Manufacturing output will be higher in 12 months’ time. The industry clearly expects Brexit uncertainty to be resolved by then. Good luck.

What else has been happening?

Some other positive points. The state visit of Donald Trump to London has highlighted the opportunity of a US/UK trade deal, which many are touting as an immediate response to losing full access to European markets. GDP has been rising a little faster than expected. The unemployment rate continues to fall, this time it is 3.8%. There has been a small decrease in the debt ratio. For economics junkies the Brexometer score for the economy only, is 5.60 this month, down 29 basis points from its May level of 5.89. The all-time peak was 5.93 in April.

What happens next?

We will be peppered with news about the leadership race. Expect candidates to be throwing all kinds of ammunition at each other. Nigel Farage has been on the receiving end of a milkshake already, but the contest hasn’t warmed up properly yet. By next time we will know the two short-listed candidates. Can it possibly be the big two of Boris Johnson and his nemesis Michael Gove, who so famously stabbed him in the back in the 2016 contest? In the meantime, how will industry react as the vacuum of leadership continues? Can the UK economy hold up? How will the Index react?

Keep following the Brexometer to find out.

Footnote

Due to holidays the Brexometer is a day or two earlier than usual this month. As a result the sentiment score for the UK Services sector is not yet available. The Index will be featuring a historical adjustment next month, if that score has moved during May.

This year we have set up a competition open to everyone, to predict each month’s score. May’s winner is Daniel Page, who came closest. He has won the special prize, a Brexometer tenner with the serial number starting AA, one of the first new plastic ten pound notes ever printed. Next month would you like to join in? The Index could be heading anywhere, so it will be an open field. There is another Brexometer tenner to win, together with a framed certificate to show off your awesome punditry to your colleagues and friends. Just email your own prediction (a score out of ten to two decimal places), and this special keepsake could be yours… or you could just spend it!