Global Macro Service > Research Briefings > United Kingdom

UK Recession Watch

Economic indicators

The week’s economic data was mixed. Industrial production fell by 0.4% month-on-month in August, as the July strength in the extraction sector unwound. And manufacturing output was up just 0.2% on the month, after slumping 0.9% in July.

Some of the weakness in manufacturing can be attributed to a poor external performance. The trade deficit widened sharply in August and exporters appear to have used the weak pound as cover to increase their sterling prices.

September’s CIPS surveys reported stronger growth in activity in the manufacturing and construction sectors. But the key services reading came in lower than August. We remain on track for modest GDP growth of 0.3% in Q3.

Financial markets

It has been a volatile week in financial markets. The pound has fallen by 4% against the euro and 5% versus the dollar as markets faced up to the prospect of a ‘hard Brexit’. But gilt yields have risen by 20bp on talk of looser fiscal policy. The impact of these factors on monetary conditions should be broadly offsetting.

We judge the risk of recession to be unchanged from last week at 20%.

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