The economy is starting to look like a small boat tossed by the waves of political madness

Inside Business: After PMI numbers painted a dreadful picture of what happened in June, the ONS is preparing to release its estimate of GDP for the three months to the end of May

Philip Hammond has boasted about the 25 consecutive quarters of growth. His successor may have to explain why the streak is ending (AFP/Getty Images)

Last week’s UK economic news was about as dismal as it could get. There were three sets of Purchasing Managers Index (PMI) numbers for manufacturing, construction, and services and they all fell within varying degrees of awfulness.

The first showed that manufacturing in June contracted faster than anyone expected. It came in at 48 with anything above 50 representing growth.

The second, construction, provided an even bigger shock on the downside, tumbling to 43.1. Services, the UK’s dominant sector, crept into positive territory at 50.2. But that was a lot worse than economists had expected (51).

The composite figure after what one economist called a “trifecta of woe” stumbled in at 49.2, indicating that the private sector shrank for the first time since the summer of 2016.

Most forecasters now expect that the official GDP numbers for the second three months of 2019 will show the first quarterly contraction in the UK economy since 2012, during the depths of the Eurozone debt crisis.

There isn’t a direct read across between the PMIs and GDP. For a start the two numbers look at different things. The compilers of the three indices ask a panel of businesses about the direction of change. Did things go up, down or stay the same in a particular month. They derive their numbers from their answers. The GDP estimates produced by the Office for National Statistics look at the turnover of the entirety of UK plc and how it has changed.

They sometimes diverge quite a bit, particularly during times of uncertainty (like now). The direct aftermath of the EU referendum provides a good example of when the PMIs were more negative than the official data that followed.

Some of the economists I’ve spoken to recently, however, think there’s a good chance the two will paint a similar picture this time.

Philip Hammond, who is almost certain to be turfed out of Number 11 Downing Street around the time Theresa May leaves Number 10, has been fond of pointing to the now 25 consecutive quarters of growth the Tories have presided over. His successor will likely have the job of explaining why the streak came to an end.

On Wednesday the ONS will release its official figure for quarterly GDP to the end of May. The rolling quarterly updates it provides are a relatively recent innovation. But the number people get excited about is the one for the three months to the end of June because that’s a true calendar quarter. It’s also the number everyone’s become used to seeing as more important.

But next week’s announcement will still be closely watched.

The PMIs were a lot better in May than in June (services 51, manufacturing 49.4, construction 48.6). But they weren’t exactly cheerful. They paint a picture of a stagnating economy.

Despite this, Oxford Economics thinks GDP probably rose by 0.3 per cent in May. Given that we know the economy shrank in April, and how thoroughly awful the PMIs for June were, the second quarter is nonetheless still likely to show a contraction (Oxford thinks 0.2 per cent).

Most forecasters, however, expect a bounce back in the third quarter. So what I referred to last week as a “rhetoric recession”, given the role played in increasing economic uncertainty by the way the Tory leadership contenders, Boris Johnson and Jeremy Hunt are carrying on, is still rated as unlikely.

You have to have two consecutive quarters in reverse to qualify as a recession. August, in particular, will get a boost because the car plants that are usually closed in that month will this time be open. There may also be another temporary uplift from some more no deal prepping if whichever of the terrible twosome wins follows through on what they’ve been saying on the campaign trail.

The general impression I’ve been getting from talking to businesses and business groups is that everyone’s very worried. They still hope Parliament will find a way to nix no deal. But given that it has ducked the opportunity in the past, they would be unwise to count on it.

UK plc is sailing through choppy political waters against a difficult global economic backdrop with the ongoing trade tensions between the US and China looming large. It has started to look like a small boat tossed about by the waves of political madness. The only certainty anyone really has is the current uncertainty looks set to continue, which all these numbers reflect.