10 Sep 2019

Early UK election risks fade and UK GDP data beats forecasts

PM Johnson lost his second attempt at triggering an early General Election yesterday, after he failed to achieve the backing of 434 MPs (two-thirds of the 650 MPs), as required under the Fixed-term Parliaments Act.

Many Labour MPs abstained in the vote as expected, with only 293 votes in favour of the early poll. In other unhelpful developments for the Prime Minister MPs passed a motion requiring Mr Johnson to hand over emails and call records related to no-deal Brexit planning and over the suspension of Parliament. The prorogation came into effect in the early hours of this morning, with the Brexit extension
legislation (to avoid no-deal on 31 October) having become law on Monday.

MPs will now break from Westminster until October where the Queen’s Speech will mark the opening of a new Parliamentary session on 14 October. Between now and then PM Johnson will be considering his options that could help him stick to his ‘do or die’ pledge to leave the EU on 31 October. Options said to be under consideration include:

 

  1. Writing the extension letter, and then writing another expressing his view that he did not wish to make an extension request
  2. Using emergency powers to annul the act
  3. Resign and force Jeremy Corbyn into a position where he has to make any extension request or
  4. Ignore the new Act.

 

None of the above look to be straightforward or even perhaps possible legally. For now though we may get a period of quiet as the PM considers his options and in the build up to party conference season.

  

UK GDP beats expectations

Fears of an impending UK recession have receded for the time being at least as figures from the UK ONS, released yesterday, showed that the UK economy had grown 0.3% (mom) in July, surpassing both consensus and Investec expectations for an uptick of 0.1%. This was underpinned by broad-based sectoral growth, with the dominant services industry seeing output rise 0.3% after having been flat in June.

Additionally, new construction work was 0.5% higher as activity on building sites partly recovered after stoppages during ‘monsoon June’ caused output to fall 0.7%. Meanwhile, industrial production edged up 0.1%, mirroring June’s fall, supported by a 0.3%
rise in manufacturing production after the previous month’s fall of 0.2%. Overall the strong base provided by July for Q3 diminishes the likelihood of GDP contracting for a second successive quarter after the fall of 0.2% in Q2. 

 

Irish Economy: Consumer confidence hit by Brexit

In the latest sign that the shadow of Brexit looms large over the economy at present, the KBC Bank Ireland Consumer Sentiment Index fell to its lowest level since 2013 in August.

 The headline consumer sentiment index dropped to 77.2 in August from 85.5 in July in the second largest monthly decline since December 2012. The August reading is the lowest since November 2013. The decline was broad based with all five sub-indices recording weaker readings in August with the largest fall seen in the unemployment outlook index. However expectations for household finances also took a hammering in the month with one in four consumers expecting a deterioration in their financial situation over the next 12 months, compared with one in eight who expect an improvement.

 Given the increasing turmoil in Westminster, and increasing talk of a no-deal Brexit, during the month of August, it is hardly a surprise to see consumer confidence on this side of the Irish Sea take a significant hit. With legislation to block a no-deal Brexit receiving Royal Assent yesterday however, consumer sentiment could well rebound in September, although this is clearly highly contingent on how events develop from here.

Nevertheless, it is reasonable to assume that current uncertainties and cautiousness amongst consumers is having some negative impact on spending behaviours. 

 

Economic Releases

09.30 UK Earnings Index
09.30 UK Claimant Count Change
09.30 UK Unemployment Rate

15.00 US JOLTs Job Openings