Surveys provide first signs of post-referendum slowdown

The latest data suggests that the economy dealt well with the pre-referendum uncertainty, with GDP growth picking up from 0.4% in Q1 to 0.6% in Q2. But the quarterly expansion was entirely driven by activity in April, perhaps setting a poor base for growth in Q3, which will be compounded by the uncertainty created by the vote to leave the EU. Indeed, July’s Markit/CIPS composite PMI is at a level consistent with quarterly contractions in GDP of around 0.5%. (See Chart.) That said, we continue to expect a positive response from policymakers – starting with a stimulus package from the MPC tomorrow – to mean that the ultimate economic damage is rather smaller than some of the more pessimistic pre-referendum projections suggested. For now, we think that the economy will broadly stagnate over the next few quarters, but the outlook remains highly uncertain.