The CBI’s Q3 financial services survey released overnight rounds out a bleak message from earlier surveys covering industry, other services and distribution, supporting the view here that the economy has probably already entered a recession – first chart.
A simple average of optimism measures across the four surveys is at its lowest since 2009 and below all other troughs over the past 20 years. The Monetary Policy Committee eased policy via rate cuts and / or QE on all occasions when the average fell below -15. It undershot this level in Q2 and now stands at -31 – second chart.
August money data released yesterday, meanwhile, were marginally less negative: six-month growth of real non-financial M1 recovered, with the corporate component moving back above zero – third chart. This could suggest economic stabilisation from Q2 2020 but does not negate the earlier signal of weakness in late 2019 / early 2020.
Readers have noted that the six-month change in real corporate M1 turned negative in 2010-11 without the economy falling into a recession (although GDP slowed sharply in 2011). Weakness then, however, was partly payback for a surge in 2009, while a VAT hike in January 2011 resulted in a spike in consumer price inflation. The six-month change in nominalcorporate M1 remained positive in 2010-11 but was negative in early 2019.
Money trends remain much weaker in the UK than in Euroland, where six-month real non-financial M1 growth was stable in August, with the corporate component surging further – fourth chart. This suggests much greater UK vulnerability to a no-deal Brexit. A Euroland economic recovery, meanwhile, could have a smailler-than-normal positive impact on the UK as EU customers continue to switch to other suppliers.