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

Business & Consumer Confidence (Nov.)

UK Data Response
Written by Andrew Wishart

In contrast to the flash PMI’s for November which pointed to GDP growth slowing further, the European Commission’s Economic Sentiment Indictor (ESI) points to a stabilisation. And a slight improvement in consumer confidence suggests the economy is unlikely to undermine the Conservatives lead in the polls.

Economic sentiment shouldn’t pull the rug out from under the Conservatives

  • In contrast to the flash PMI’s for November which pointed to GDP growth slowing further, the European Commission’s Economic Sentiment Indictor (ESI) points to a stabilisation. And a slight improvement in consumer confidence suggests the economy is unlikely to undermine the Conservatives lead in the polls.
  • While the Economic Sentiment Indicator is based on a broader range of questions than the PMI survey, which focuses more on output, it has a good relationship with GDP growth. Encouragingly, the headline balance has stabilised, rising from 88.0 to 89.9 in October and to 90.9 in November, consistent with annual GDP growth holding steady at 1.0%. (See Chart 1.)
  • That is underwhelming, but more encouraging than the flash PMIs for November released on Friday, which pointed to annual growth slowing further to around 0.5%. (See here.) Whereas the services PMI fell in November, the EC’s services confidence indicator reversed its October fall rising from -21 to -17. (See Table 1.) That was driven by an improvement in expected demand over the next three months from -22 to -9. The sharp rise in retail sector confidence from -22 to -14 also pushed up the headline sentiment indicator.
  • Seeing as the EC’s surveys are mainly carried out in the first half of the month, we suspect that the improvement in services and retail sentiment are linked to Brexit. A no deal Brexit seemed a strong a possibility in early October. But by November, fears of an imminent no deal Brexit had faded.
  • The tick up in consumer confidence from -11 to -9 is reassuring for the Conservatives. The rise leaves it in line with its historical average and suggests the non-seasonally adjusted GfK measure of confidence, released tomorrow, held steady in November. Stable consumer confidence will reassure the Conservatives that how voters feel about the economy is unlikely to undermine their lead in the polls.
  • The most disappointing part of the survey was that industry appeared to remain in recession. But the other sectors of the economy still look resilient. That chimes with our view that GDP growth will be soft, but not disastrous, unless and until Brexit uncertainty is removed.

Chart 1: UK Economic Sentiment Indicator & GDP

Sources: European Commission, Refinitiv, Capital Economics

Table 1: UK Economic Sentiment Indicator (Seasonally Adjusted)

Nov-18

Dec

Jan-19

Feb

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

ESI, of which:

105.0

105.4

103.7

99.2

100.8

99.3

94.5

95.1

94.3

92.5

88.0

89.8

90.9

Consumer

-8

-9

-11

-11

-12

-11

-8

-11

-7

-11

-10

-11

-9

Retail Trade

2

-8

-2

2

1

5

3

-8

-12

-29

-14

-22

-14

Services

-2

-8

-5

-16

-9

-7

-15

-13

-6

-15

-16

-21

-17

Construction

6

0

-3

-3

-11

-13

-3

-15

-4

1

-18

-16

n/a

Industrial

4

8

2

0

0

-5

-11

-11

-17

-12

-24

-17

-17

Sources: EC, Refinitiv


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