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Economy in Brief

UK GFK Confidence Reading Makes A Weak Bounce
by Robert Brusca  November 18, 2022

The UK economy has been under pressure and its politics have been under peril. Markets have a challenging time dealing with the circumstances of the economy and the policy choices made by various UK politicians in the wake of what can only be termed its Brexit fiasco. I don't know how history is going to look at the British exit from the European Union; it certainly isn't going to be something that will be applauded for its economic results. Although that wasn't the reason for doing it. I suppose part of it was a warning to the rest of Europe of how EU membership was spreading political influence through the economic union, something that wasn't supposed to happen which is the reason fiscal policies were never connected. The UK in asserting its independence and autonomy has had to foot a big bill associated with leaving as well as, find a life on its own, and construct a way to deal with Northern Ireland. That was the problem that was the death knell for Theresa May, as Boris Johnson claimed he had a solution that he did not really have. And now, a new Prime Minister is in place, to try to sort it all out all over again. Have we already seen this movie?

The backward glance
Notice that the UK economy was hit particularly hard by Covid, and while the confidence numbers show that there was a recovery in confidence it wasn't lasting and there has been a leg down since then that has brought confidence to even a deeper pit than it was in during the worst of Covid. The UK consumer confidence metric at -44 has been weaker over the last 20 years only 1.3% of the time. This is an extremely rare and extremely weak reading. In November, perceptions of the household financial situation over the past 12-months picked up slightly, however, it's still weak with a 22-percentile queue standing. Over the past 12-months households assessed their financial situation as having been in the bottom 4.7 percentile over the last 20 years; the general economic situation is assessed as being in the bottom 8.1 percentile compared to all situations over the last 20 years. The performance of inflation is assessed as having been worse less than 2% of the time. The Covid ‘cure’ appears to have been worse than the disease.

Looking ahead
More importantly, looking ahead to the next 12 months, the financial situation, and other metrics regarding consumer satisfaction are even worse. The household financial situation was slightly better month-to-month, still it has been worse only 1.3% of the times over the last 20 years. The expected general economic situation, which also improved slightly month-to-month, has been worse over the last 20 years 1.3% of the time. The unemployment situation expected over the next 12 months worsened in November and has a 75-percentile standing- it's been worse only 25% of the time that's a chilling metric for sure. And looking ahead at inflation, consumers find the outlook for inflation has been worse historically only about 5% of the time. Clearly consumers are concerned, and the economy has a long way to go to be put on level footing

There was little respite by income with lower income people assessing conditions as worse less than 1% of the time while upper income people assess conditions is having been worse about 6% of the time.

The UK is going to deal with this situation by implementing a policy that will be aimed at increasing tax revenue and hoping that that doesn't damp growth. Policymakers always have a hard time making a choice between doing something that they think will pay off right now and doing something that will have a bigger payoff in the future even though it's immediate payoff Cannot be quite so clear or might even be controversial.

The outlook for the UK is still difficult. Its political parties seemed to have lost their way much like political parties in the United States that also appear to have lost their way apart from know the enemy is on the other side of the aisle. Public policy seems to find it difficult, coming to grips with the truth whatever that is. But politics seemed to bend everything to their will. It's a very unfortunate situation and it seems to be global. I don't know if it spread along with COVID or not, but here it is, and the phenomenon seems pervasive.

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