LONDON – The chart below is the most worrying one in British economics right now: It shows a country slipping toward recession, a contraction that looks set to arrive in 2018 or 2019, just as Britain exits the EU.
The graph – from IHS Markit – shows sequential UK GDP growth on top of the purchasing managers’ index (PMI), which tracks the intent of business executives who make corporate buying decisions. The two measures move in rough parallel.
Right now, growth in both is collapsing:
What’s going on?
Consumers are frightened about the future. The fear kicked in after the Brexit referendum. Some of them have simply run out of extra spending money, as the credit rating agency Moodys noted a few weeks ago. So now they are putting a stop to their spending. Consumer spend represents about 60% of UK GDP – so this is serious.
The starkest example is car sales.
British people have very suddenly decided to stop buying cars, as this chart from Barclays shows:
That chart is of all vehicle sales, old and new.
Here's the chart just for new cars:
Pantheon Macroeconomics analyst Sam Tombs likes to graph the GfK consumer confidence index on top of new car registrations, to show how closely they track each other. The worrying thing is that they're both tracking downward, and have done so ever since summer 2016 when the EU referendum went against Europe.
House prices were growing at around 8% year-on-year until the referendum.
And then growth immediately went into decline as buyers retreated:
This chart shows growth in all the major consumer sectors, based on data from Barclaycard, which covers 20% of UK card transactions. Since the referendum, we've lost one percentage point of consumer spending growth.
The slide has been from above 4% to below 3%:
Barclays predicts it will get worse ...
The charts suggest the UK is sliding down a long, slow slope toward a recession that will coincide with the end of the Article 50 negotiations that will take the country out of the EU single market.
Brexit, in other words, will come at a price.