On the cusp of a dream or the edge of the cliff?
Over the last month, the Brexit situation has floundered, with the House of Commons vote on Theresa May’s deal suspended for evident lack of support from MPs. Almost every day has seen a storm, with the deal being attacked from all sides and the EU leadership maintaining a hard line. The result is that numerous options have been mooted; from a new Referendum, to re-negotiation with the EU, or even a confidence vote leading to a General election. At least there is one option off the table; the challenge to May’s leadership of the Conservative party has been seen off, giving a year’s grace before another one.
The Accountagility Index (AAX) records UK political and economic health in a score out of ten, and this month the political metrics have been a key factor in driving it to its lowest level since August 2016, just after the vote. It has dropped to 4.77 , a fall of 35 basis points from the November score of 5.12.This is the largest monthly change in the Index since September 2016 and the first time it has plunged into the red since the summer of 2017. Any score below 5.00 is negative.
What caused the rise this month?
Although the impact of both the political turbulence and the Mexican standoff of the Brexit deal took their toll on the Index, it was the resulting large falls in the UK markets that had the most significant impact this month. Other changes in December were the ongoing pressure on sterling, and a small rise in unemployment. Sentiment held up quite well within this uncertainty, with the Construction sector recording a four-month high and adding jobs. This was from new work, mainly from the residential construction. There was a rise in Manufacturing sentiment, but export orders have been hit by Brexit turmoil. The important Services sector is growing at a snail’s pace, with subdued business and consumer spending. Pressure on UK households has intensified this month too.
What happens next?
Last month we predicted a fall in the Index unless a breakthrough in the Brexit deal was observed. This downward trend will surely continue until some clarity emerges. Will the Commons vote go ahead soon? Can it get through? Will the EU come out more strongly to support it? And how will all this confusion impact the health of the UK?
Keep following the Brexometer to find out