Clouds Linger as U.K. Economy Sours in April: Brexit Barometer
(Bloomberg) -- The Bloomberg Brexit Barometer last month had its largest drop since August 2017 as the U.K. jobs picture and market uncertainty took their toll. The decline came as the country’s policy makers, businesses and citizens grappled with what exactly a post-Brexit trading relationship with the European Union will look like.
The barometer, which includes data for growth, labor market, inflation and other key economic indicators, fell to 22.7 in April from a revised 33.2 in March, marking the third consecutive month of “cloudy” weather. It was the largest drop since August 2017.
The one bright spot in the barometer was a pickup in business sentiment in the industrial and construction sectors. Driving the decrease was falling consumer confidence in the state of the overall economy and household finances, as well as weakening employment expectations in manufacturing.
The weakness of the data flow will almost certainly mean the Bank of England keeps policy on hold at its May meeting. We suspect the slowdown will be short-lived, which will put the prospect of a rate hike back on the table in the second half of the year.
—Bloomberg economist Dan Hanson
The barometer is calculated every day with the most up-to-date data available. The monthly average captures the economy’s longer-term trajectory and provides more clues to future direction.
While not included in either the daily or monthly barometer, some closely watched but lagging indicators released during April supported this gloomier economic outlook. Among the negatives: a disappointing advance read on first-quarter growth, at just 0.1 percent, an increase in jobless claims in March, a fall in retail sales that same month and nearly stagnant industrial and manufacturing production in February.
The few economic positives included a measure of unemployment that ticked down 0.1 percentage point in February.
Politically, Prime Minister Theresa May had a terrible month. First was the overwhelming vote by the House of Lords demanding that May seek a post-Brexit customs union with the EU, revealing growing confidence among pro-EU Tories. Then the prime minister’s inner Brexit cabinet lined up against her middle-of-the-road proposals, instead favoring a clean break from the EU’s customs system.
The barometer is powered by four data feeds curated by Bloomberg Economics that comprise 22 indicators in all. Despite the overall down trend, the measure rose more often than it fell in April, pointing to fluctuating levels of uncertainty in the U.K. stock market and with the pound. More broadly, the barometer has spent nine of the past 22 months since the Brexit vote in “cloudy” territory, or below the 35 mark, and nine in “windy” conditions, or below 20.
The last time the barometer turned negative, or “rainy,” was in July 2016, in the immediate aftermath of the referendum.
April’s Most-Read Brexit Stories:
What to Watch in the Coming Weeks:
- May 8: EU ambassadors meet to discuss state of play in Brexit talks
- May 14: EU ministers of EU affairs meet to discuss Brexit
- May 17: Informal summit of EU leaders in Sofia, Bulgaria, Brexit could be discussed on the sidelines, though officially the agenda is about the bloc’s Western Balkans strategy
©2018 Bloomberg L.P.