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K growth may have given us a pleasant surprise between April and June — rising 0.6% — but to a large degree it’s already ancient history. The real question on everyone’s minds is how the economy is likely to perform over the next three months and beyond since the historic Leave vote on June 23.

The honest answer is that we do not know. It is reasonable to suggest that uncertainty over future trade access to the European Union will dampen business spending on capital projects and hiring, at least for a while. Indeed, this was the message I picked up from a number of companies around the UK earlier in the year. But it gives us little in the way of clues on exactly how sharp the downturn might be.

Several surveys trying to take the current temperature of the economy have been published over the past fortnight. Some evidence has made for gloomy reading, suggesting the economy may already have fallen into contractionary territory. The early July version of the Purchasing Managers Index (PMI) — drawing together manufacturing and services firms — fell to its lowest level since March 2009 and the depths of the financial crisis. The PMI is an excellent survey, and does measure activity within firms, not just

Philip Shaw

sentiment. Even so, one has to be careful on how to interpret the results for two reasons. First, it is feasible there is a degree of shock value in the survey that will partly unwind over time. Indeed survey compiler IHS Markit remarked that later participants‘ responses showed signs that confidence was lifting, as a new Government was being formed. Second, the PMI has a couple of critical omissions: government services and distribution, which includes retailing. Both are areas that may hold up relatively well. Indeed, we note that this week’s GDP figures showed output from distribution, hotels and restaurants rose by a robust 1.1% over the quarter. So some of the gloom may be overcooked and the economy does not appear to be in for a cataclysmic, financial-crisistype shock. And while it is impossible to tell for sure, the UK may also be on course to avoid a mild recession. There are several reasons why. First, although spending by firms looks set to be hesitant, the process seems already under way: business investment fell in the final quarter of