Business & Consumer Confidence (Jan.) - Capital Economics
UK Economics

Business & Consumer Confidence (Jan.)

UK Data Response
Written by Andrew Wishart

The European Commission’s Economic Sentiment Indicator (ESI) confirmed the message from the flash PMIs last week that sentiment in the services sector improved markedly after the election, but that the manufacturing sector continues to struggle. Meanwhile, the news on the retail sector was mixed.

Further signs the economy has turned a corner

  • The European Commission’s Economic Sentiment Indicator (ESI) confirmed the message from the flash PMIs last week that sentiment in the services sector improved markedly after the election, but that the manufacturing sector continues to struggle. Meanwhile, the news on the retail sector was mixed.
  • Encouragingly, the headline balance rose from 88.2 in December to a five-month high of 91.5 in January. That’s consistent with annual GDP growth picking up to 1.2% from a probable 0.8% in Q4. (See Chart 1.) That’s a similar message to that of January’s flash composite PMI, which was released last week.
  • The increase in the UK ESI was predominantly driven by a rebound in services confidence from -15.7 to a one-year high of -4.9. (See Table 1.) In turn this was due to a stronger assessment of demand and a rebound in hiring intentions. Industrial confidence also improved, but far more marginally. The rise from -22.0 to -19.5 suggests the sector has continued to contract.
  • The Euro-zone ESI also edged up in January, from 101.3 to 102.8. But unlike in the UK, this was driven solely by an improvement in the industrial and construction sectors. That is a hopeful sign for UK manufacturing, much of which forms part of pan-Europe supply chains. At the same time, it suggests the surge in confidence in the UK’s services sector is more due to the domestic political situation than changes in the global economic backdrop.
  • Finally, the survey painted a mixed picture of the retail sector. The rise in consumer sentiment to a one-and-a-half-year high points to a recovery in overall consumer spending growth this year. Annual growth in consumer spending had slowed from 2.3% in 2018 to 1.1% in Q3 2019. But retail sentiment remained firmly in the doldrums, falling from -15.6 to -21.8.
  • Overall, while the industrial and retail sectors are lagging, the survey backs up the flash PMIs in suggesting that the economy has turned a corner. Our hunch is that the upbeat survey evidence will be enough to tip the balance on the Monetary Policy Committee in favour of keeping interest rates on hold at noon.

Chart 1: UK Economic Sentiment Indicator & GDP

Sources: European Commission, Refinitiv, Capital Economics

Table 1: UK Economic Sentiment Indicator (Seasonally Adjusted)

Jan-19

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-20

ESI, of which:

103.7

99.5

101.0

99.5

94.8

95.4

94.5

92.8

88.2

90.0

90.6

88.2

91.5

Consumer

-11.3

-10.8

-11.7

-11.1

-8.3

-10.5

-6.9

-11.4

-9.8

-10.6

-8.8

-7.1

-6.5

Retail Trade

-1.9

2.2

0.5

5.1

3

-7.5

-11.7

-29.0

-14.0

-21.6

-13.7

-15.6

-21.8

Services

-4.9

-16.2

-9.4

-6.9

-15.1

-12.7

-5.9

-15.4

-15.8

-21.4

-16.7

-15.7

-4.9

Industrial

2.3

-0.2

-0.4

-4.6

-10.5

-10.8

-16.9

-12.2

-23.5

-16.9

-16.7

-22.0

-19.5

Sources: EC, Refinitiv


Andrew Wishart, UK Economist, +44 20 7808 4062, andrew.wishart@capitaleconomics.com