The Daily Update - Hunted or Johnsoned - The Lesser of Two Weevils

Now that we know the tame and tolerable choice of Christine Lagarde for President of the ECB, next up in the potential promotion political calendar are Alexander Boris de Pfeffel Johnson or Jeremy Richard Streynsham Hunt. In 20 days’ time, one of these somewhat polarising men will win the privilege of taking the helm of a seemingly rudderless and dissenting nation at increasing risk of breaking-up: on the rocks which are the EU negotiators and national and international obstinacy.

Neither of the prospective PMs seem capable of negotiating penalties (any better than our footballers) or reaching an improved withdrawal deal, and have either vowed to fulfil Brexit “come what may” by 31 October or set no-deal deadlines for the end of September. With currency markets and other signals suggesting a no-deal outcome is now more likely than ever, today’s weak PMI reading will further fuel worry of the possibility of the UK entering a recession just as it braces for a hard Brexit. With the latest composite PMI data missing forecasts of 51.0 with a reading of 49.7, this first contraction since 2016 in the private sector points to a potential 0.1% contraction in GDP for last quarter with risks and momentum favouring further economic weakness for the current third quarter.

IHS Markit’s Chief Business Economist, Chris Williamson, describes “The near-stagnation of the services sector in June is one of the worst performances seen over the past decade and comes on the heels of steep declines in both manufacturing and construction. Collectively, the PMI surveys indicate that the economy has slipped into contraction for the first time since July 2016, suffering the second-steepest fall in output since the global financial crisis in April 2009… Risks also remain skewed to the downside…”

The next couple of weeks will see further bombast over Brexit intentions from both candidates but it is highly probable that neither will be able to reach a new deal with the EU and would also struggle to push through a no-deal Brexit: the lure of a General Election expected by many to be enough for the EU to again extend the deadline. So the current pageant is mostly about who is more likely to give the Conservatives and edge over Corbyn. But there is no guarantee that an extension will be offered, and some believe that the next likely PM has a secret agenda to put a Norther-Ireland-only-backstop to the vote effectively forcing the dilemma between a hard border and a hard Brexit onto the smallest country in the UK. With so much uncertainty, if the Q2 GDP reading is slightly in the red there will be a strong probability that the UK will be in a recession come the end of September, regardless of who or what ideology wins in the coming days and months.

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