Is the UK Economy Doing Better Post-Brexit?

Wed, Aug 24, 2016 - 4:00pm

Some have been pointing to the UK Economic Surprise Index from Citigroup, which shot up post-Brexit, as proof that the UK economy is improving after the vote to the leave the EU.

Unfortunately, as Jim Bianco recently explained on our podcast (see Brexit Probably Most Bullish Thing That Happened This Summer), the post-Brexit surge in positive economic surprises is almost entirely due to economists scrambling to downgrade their forecasts since the collective thinking was that UK citizens would vote to stay in the EU...or else chaos would break out.

Now that the "unthinkable" has happened, economists have completely downshifted their estimates for future economic activity giving the appearance of positive economic surprises.

Since the chart above is basically a ratio dividing economic data by economic expectations, if the data is better than expectations, it's a positive surprise. If economic data is worse, it's negative. Pretty simple, except in the case of the UK, both are trending downwards with expectations now falling much faster than the actual data.


Source: Bianco Research

Bottom-line: UK economic data still appears to be trending downwards and the most noticeable impact from the Brexit vote so far has been to economists' expectations for the future. Also, be careful how you use economic surprise indexes. Reality may be far different than what's commonly reported!

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