May has already brought with it April showers and some weather warnings. The first week of May has brought in the first economic data for April and we should brace ourselves for some startling year-on-year growth rates for April and for Q2 in due course. Two indicators worth watching concern residential property transactions and new car sales.
Today’s SMMT new car sales for April confirmed that UK new car sales increased by 3,177% year-on-year last month. But this growth rate paled into insignificance relative to the 13,629% year-on-year rise for the Northern Ireland new car market. Context is everything here. The huge increase is a reflection of how bad April 2020 was rather than how strong activity is this year. This is what economists call ‘base effects’ in this case rebounding off an extremely low base. For example, there were just 24 cars sold last April during the first full month of lockdown. That represented a 99.4% y/y decline on the previous year. Despite a near 14,000% y/y in April 2021, last month’s sales of 3,295 new car sales were still disappointing. Local dealers sold 20% fewer new cars in April 2021 than they sold on average each April during the decade before COVID-19 struck. Indeed, last month’s car sales figures represent the second worst April on record.
A graph charting instances of house prices being discussed at dinner parties across Belfast and Dublin would show a very large spike around 2007 followed by a deep trough in the years after the boom rediscovered gravity. Indeed, the subject became almost taboo as the downturn unfolded and residential property prices fell almost 60% from their respective peaks.
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.
The start of the new year has been dominated by news stories on falling oil prices and plunging stock markets. Earlier this month a barrel of Brent crude oil hit a near 13-year low of just over $27. In terms of sterling, it was the first time since 2004 that you would have received change from a twenty pound note. A barrel of the black stuff hit a low of £19.64 last month. Continue reading