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By HaleStewart June 24, 2016 11:11 am
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Thoughts on Brexit, Part 4

Did the UK just vote themselves into a recession?  Let's take a look at the latest Markit data to obtain a better insight into this question.

The latest Markit manufacturing nunber was 50.1 -- just barely positive.  And all new orders came from domestic contracts; export orders declined for the fifth consecutive month.  Moreover, the Brexit vote was hurting business:

According to a special question added to the survey this month, over a third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote, within which 8% indicated that the impact was ‘strongly detrimental’. Further details are provided in the research note following this press release. 

While the service number was at its lowest point in 38 months, it was still a positive 53.5.  However, new word orders were at their lowest in 41 months.  The Brexit vote was slightly less negative on the service sector, although it was still clearly having an impact:

In a special question added to the May survey, companies were asked to comment on the impact on their current business of the issue of the UK’s potential exit from the EU. Around 28% of service providers reported a detrimental overall impact, and a further 9% stated a ‘strongly detrimental’ effect. However, 51% reported that they had so far been unaffected (further details are provided in the research note accompanying this release).

Construction activity was positive but subdued with a 51.2 reading.  But there too, we see the negative impact of the Brexit vote:

May data signalled an outright reduction in new order volumes for the first time since April 2013. Anecdotal evidence pointed to a general lack of client confidence, driven by heightened uncertainty about the economic outlook. Moreover, a number of firms noted reluctance among clients to place orders and commence contracts until after the EU referendum.

According to a special question added to the survey this month, around one-third of respondents have seen a detrimental impact on their business from uncertainty regarding the forthcoming vote. Further details are provided in the research note following this press release.

Before the vote, the business sector was still growing.  However, there was also a fair amount of uncertainty caused by the vote that was holding business back.  

If uncertainty was hurting business before, just think about the negative impact now.  For example, half of the UK's exports go to the EU.  While UK-EU trade is still governed by the EU treaty, what will happen after the expiration of that period?  What rules will apply?  I seriously doubt the EU will grant terms as favorable to the UK; after all, if they did so, then what would be the benefit of joining the union?  In short, if business was uncertain before, they're very uncertain now.

 

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