A British story that raises hope amid the gloom

Nowadays, there are hazards to looking for signs of hope in the British economy. As the Organization for Economic Cooperation and Development forecast for 2018 and beyond shows, a cloud of gloom has descended on the United Kingdom.

The primary source of pessimism is, of course, Brexit, and the fear that withdrawing from the European Union will hurt British consumers through higher import prices and weak business investment. And, making matters worse, the British government’s independent Office of Budget Responsibility has now lowered its expectations for economic growth, owing to persistently weak productivity performance in the UK.

Against this economic backdrop, British politics is in a state of chaos, with Prime Minister Theresa May seemingly presiding over an increasingly weak government. At this point, the only thing stopping a Conservative Party putsch against May is the fear of losing a fresh election, which would bring a far-left government to power for the first time in many years.

Meanwhile, the rest of the world economy appears to be strengthening, and indicators that I consider to be reliable have been accelerating. One area that is particularly relevant to the UK is the eurozone, where the manufacturing Purchasing Managers’ Index rose above 60 in November — its highest level since 2000. Despite the UK’s best attempts to declare economic independence, its fortunes will continue to depend more on its closest geographic neighbors than on any other country or region.

Elsewhere, almost all of the 10 largest economies’ performance has been strengthening in recent months. In the US, that was true even before Congress started writing corporate-tax-cut legislation, which now seems likely to be enacted.

So, where does this leave the UK? It may come as a surprise to hear that the UK’s own PMI is now at its highest level in four years, suggesting that businesses are becoming more willing to make new investments. If official data in the coming months support this finding, it will represent a significant positive development indeed.

In 2018, there will continue to be plenty of drama surrounding Brexit and the future of the May government.