Current GDP masks financial reality

We often look to GDP to measure the nation’s net income, but selection of data can skew the picture and lead to inaccurate predictions.

Official figures showed that the UK economy grew by 0.5 per cent from January to April – but all the while, companies were stockpiling products in preparation for a no-deal Brexit. This in turn created the illusion of stronger growth. 

As contingency plans slow down as we approach the Brexit deadline (now 31 October), this will create the perception of weaker growth. We are already seeing the first signs as the UK manufacturing sector contracted in May for the first time since July 2016.

A survey held by IHS Markit found that stockpiling meant it was now difficult for manufacturers to convince clients to commit to new contracts. 

Rob Dobson, director at IHS Markit, commented: “Demand was also impacted by by ongoing global tensions, as well as by companies starting to unwind inventories built up in advance of the original Brexit date. Some EU-based clients were also reported to have shifted supply chains away from the UK.” 

Thomas Pugh, economist at Capital Economics said manufacturing was likely to remain subdued and that the “hangover from Brexit preparations in the sector will weigh on GDP” in the second quarter. 

Meanwhile, during his state visit, President Trump tweeted that a ‘big trade deal is possible once UK gets rid of the shackles. Already starting to talk!’ – but once again we should remain cautious over how accurate this prediction will turn out to be.

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