Chart of the Month – Economic Surprise Index

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More than three months have passed since the UK’s EU Referendum result. Since then we have become all too familiar with three words “Brexit means Brexit”. The economic impact to date could also be summed up in three words: better than expected. The Citi Economic Surprise Indices measure data surprises relative to market expectations.  A positive reading means that data releases have been stronger than expected.  Conversely, a negative reading means that data releases have been worse than expected. During the month of May the incoming UK economic data was much weaker than market expectations, hence the negative readings with the Surprise Index.  However, following the EU referendum on 23rd June there has been a steady stream of better than expected data. Indeed, the UK Economic Surprise Index recently hit a three-year high. Economic indicators ranging from the labour market to retail sales have exceeded the consensus opinion amongst analysts in recent months. While economic conditions following the post-Brexit vote have not been as bad as feared, it is too early to draw any firm conclusions on the economic impact from Brexit.  After all, Brexit hasn’t taken place yet and the UK remains in the EU. Furthermore, we don’t have any clarity on what type of Brexit deal the UK Government envisages or what the EU will accept.

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