Chart of the week
The UK’s monthly GDP estimate for August, as calculated by the Office for National Statistics, indicates that the economy shrank by 0.1%. Combined with July’s 0.4% growth figure and the carry-over effect, third-quarter growth is set to come in at an annualised 1.9%. In other words, if September’s GDP is in line with the level seen in August, then UK third-quarter growth will be 1.9% compared with -0.9% for the second quarter.
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OUR ANALYSIS
Barring anything untoward in September, the UK is set to avoid a technical recession – two consecutive quarters of contraction – in the third quarter. That said, survey data is not encouraging. The composite PMI index is now at 49.3, its lowest level since July 2016, just after the shock Brexit referendum result.
The current outlook for Brexit remains unclear and all possible scenarios remain on the table. However, the likelihood of a new withdrawal agreement between the UK and the EU seems to have faded over the last few days. The government may manage to sidestep the Benn Act, which forces it to seek an extension in the absence of agreement on October 19th. This would then open the door to a no-deal Brexit on October 31st.
The impact of a no-deal exit is highly uncertain, but the regulatory changes and practical aspects of the withdrawal will likely prove more of a drag on growth than any new customs duties.
The opinion expressed above is dated 10 October 2019, and liable to change.
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