This will be the first week when we begin to catch some feeling for the economic impact of the Brexit vote. We have seen the impact on the financial markets, with on the one hand the devaluation of the pound, and on the other the rise in the FTSE 100 index and in gilt prices. But financial markets act differently from the real economy, and for most of us the real economy has a more direct impact on our lives.
Most of the information this week will relate to the pre-Brexit situation, but there are two things in particular that will give us a feeling for the world to come. One will be the housing market, the other the purchasing managers’ indices.
To know what is happening to the housing market you have to listen to the estate agents and the house-builders. Both have an incentive to talk things up, for they are in the business of selling. But I expect we will get quite a muted response this time. Nothing much will have happened to prices. It is too early for that. But volumes of transactions are certain to have fallen, for some sales will have fallen through. It will need a careful ear, though, to distinguish the signals from the background noise. There will be stories of forced sellers having to slash prices, as well as foreigners jumping into the market on the back of a cheaper pound.
My feeling is that the best way to get a handle on all this will be to look for any data that compares what is happening now to what happened after the Lehman Brothers collapse. It is not a perfect parallel by any means, but that was the start of the last serious housing market downturn. If the estate agents start saying this is worse than 2008, then we are in trouble. Intuitively this does not feel nearly as serious as that, but we have already had one report from the Royal Institution of Chartered Surveyors suggesting a big fall in inquiries about property, and that bodes ill.
The second sensitive indicator is business confidence. Here we will have some harder evidence. Markit, the business research firm, carries out purchasing managers’ surveys, and on Friday it is releasing details of a special post-Brexit survey. These PMIs, as they are called, give the best lead indicator for the director of the economy three months ahead. There will be some sort of hit, and the really interesting thing will be how serious that hit is. These are just one set of numbers and they won’t tell us much about the economy next year – that is too far away – but they will be the first serious study that will tell us whether there will be simply a slowdown in the autumn, or something worse.
There are other things to look for this week, but they will be a snapshot of the economy on the eve of the vote. There will be labour market stats on Wednesday, the third thing to look for. Expect them to show unemployment still at 5 per cent. Big question: will that prove the floor? Most economists expect some rise in unemployment next year.
On Thursday we get another snapshot, this time of public finances. We have been told that fiscal policy will be eased – no post-Brexit additional austerity now. These figures will show how well the previous government was doing for the first quarter of the financial year. Is it on target? These figures are historical, but the closer the Treasury was to its deficit-cutting plan, the more room there will be for the new Chancellor to ease policy. There will be other stuff this week – consumer prices, retail sales and so on – but public finances will be under particular scrutiny.
Finally, what not to look for. That will be foreign comment on the British economy. One of the fascinating features of the past three weeks has been the eagerness of foreign commentators to put out views about the impact of Brexit on the UK. But we don’t really have much feeling yet, so how on earth can they know?
I do, however, expect the relentless adverse comment to continue for a while yet. Some of it may well turn out to be right, but do remember how the International Monetary Fund warned of a serious UK downturn just at the moment when – albeit after a slow start – our economy began to lift off.
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