Fathom’s UK Economic Sentiment Indicator (ESI) was unchanged in July, at 0.0%. The ESI proved to be a useful indicator of underlying economic momentum through the first half of this year; a time when the official statistics were distorted by a large and short-lived inventory cycle caused by preparations for a no-deal Brexit. We see close to an evens chance of a second consecutive contraction in UK economic output in Q3, which would push the economy into technical recession — much will depend on the response of firms to the prospect of a no-deal Brexit on 31 October. Whether the UK leaves the EU on the date currently scheduled, or whether it does not, with Prime Minister Johnson’s effective majority down to just one, it is very likely that there will be a general election before the end of this year. Opinion polls are pointing to a hung parliament, with little certainty about which party will capture the largest share of the vote. In this environment, the risks to UK economic sentiment, particularly among firms, lie to the downside.
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