MIA: The UK’s Brexit Recession

By James Picerno

It was a sure thing, a done deal, a safe bet. Or so we were told. But certainty that the UK would slide into a recession after voting in June to leave the European Union has, so far, turned out to be one more botched recession forecast. But all’s not lost since the erroneous prediction offers another teachable moment for reviewing best practices for analyzing the business cycle.

Let’s start with today’s revised third-quarter GDP report for Britain. The Office for National Statistics (ONS) reports that growth was a bit stronger than previously estimated—output expanded 0.6% in Q3, matching Q2’s pace. “Robust consumer demand continued to help the UK grow steadily in the third quarter of 2016,” notes ONS statistician Darren Morgan. “Growth was slightly stronger than first thought, though, due to greater output in the financial sector.”

Indeed, there was no shortage of dark forecasts following the Brexit vote in June. A month later, the die was supposedly cast when PMI survey data published by IHS Markit reflected sharply weaker readings. The weak data are “consistent with GDP contraction,” advised the Economist Intelligence Unit’s Danielle Haralambous in July.

Many analysts agreed, fueling the widespread belief that a new recession was fate. “The PMI data for July released today point to a sharp drop in economic activity,” said Kallum Pickering, senior UK economist at Berenberg. “The risk of a recession in [the second half of] 2016 is significant.”

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