UK set to be the ‘standout performer’ among major economies

Analysts at Panmure Liberum think the UK will be the “standout performer” among major economies in the months to come with firms set to benefit from strengthening domestic demand.

In a note published this morning, the City brokerage discussed its early cycle indicator (ECI), a tool for predicting how economies are likely to perform over the months ahead.

Using data from PMI surveys, Panmure Liberum’s ECI constructs a new order to inventories ratio, essentially measuring incoming demand compared to firms’ existing stockpiles. Any reading above one indicates strong demand.

The ECI for the UK stands at 1.09, comfortably ahead of both the eurozone and the US. The ECI has continuously improved since it reached a nadir of 0.80 last August.

In the most recent round of PMIs, the UK reported expansions in output and new orders in August, unlike the US and other major European economies.

The analysts noted that demand for exports has been “challenging”, so the improvement seems to be domestically driven reflecting lower inflation and looser financial conditions.

“The UK’s outlook is looking better than Europe’s, but also the US’s,” the analysts noted.

In Europe, the ECI fell to 0.90 in August from 0.94 in July. This was fuelled by a “broad-based decline in demand” raising questions about the recovery of Europe’s industrial sector.

In the US, meanwhile, it slumped to 0.89 having been at 1.07 in July as the slump in new orders gained momentum.

The UK was the fastest growing economy in the G7 in the first half of the year, surprising pundits who had expected another year of sluggish growth.

Surveys suggest that the economy will continue growing in the months ahead, albeit at a slightly slower pace than earlier in the year.

The recovery has largely been driven by a recovery in consumer spending power, as inflation has receded while wage growth has remained fairly robust.