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Britain in grip of Contradictory Survey Syndrome

Terry portrait with tieIf the British economy is suffering from any specific malaise it is not so much unemployment, low output or weak exports. The poor old thing has been struck down by something far worse – Contradictory Survey Syndrome.

It is causing severe headaches for economists and City analysts who are trying to cope with huge mood swings as the patient appears healthy on one day only to suffer a severe downturn the next.

The symptoms are playing havoc with the  exchange rate and company valuations. No one knows when, or if, there will be a full recovery.

More concern about the health of the British economy has been sparked by a new survey suggesting that the Brexit decision has led to the lowest activity for seven years.

The gloomy prognosis emerges from the Markit purchasing managers survey.

It shows the economy contracting 0.4% in the third quarter, prompting a sharp slowdown in orders and the postponement of projects.

There were calls, not least from shadow Chancellor John McDonnell, for Chancellor Philip Hammond to return from his foreign trip to respond to the deteriorating situation.

One news agency reported that “the evidence of a sharp drop in business activity across a broad swathe of Britain’s economy may alarm the Bank of England, which is trying to decide how aggressively to act at its August policy meeting to cushion the shock of the referendum vote.”

Yet only two days ago the Bank of England issued a report saying there was “no clear evidence of a sharp general slowing in activity since the EU referendum”. This was greeted by Mr Hammond as a sign that the fundamentals of Britain’s economy remain strong.

So, need to rush back to be at the patient’s bedside?

Conundrum: Philip Hammond

Conundrum: Philip Hammond

No wonder British business feels uncertain. A radical decision to quit the European Union was enough to shake everyone’s confidence. A regular flow of conflicting reports and surveys does not help.

Only a few weeks ago two surveys on the Scottish economy – from BDO and Bank of Scotland – pointed to conflicting trends in the level of optimism. Nor is Contradictory Survey Syndrome restricted to the wider economy. It is has been evident in the retail and property sectors.

A report from the Royal Institute of Chartered Surveyors this week reported the property sector to be in the early stages of a downturn, which may have come as a surprise to one Edinburgh property consultant who told me that reports of a slowdown were “nonsense”. He  said there was huge demand for property which was pushing up rents. The level of interest in retail space in Edinburgh city centre is such that he had not even had to advertise one recent property he had let.

Yesterday another consultancy reported robust activity in the office market in Edinburgh and Glasgow. In London the “crane count”, an indicator of actitivy, is said to be at its highest for some time.

Contradictory surveys may be greeted with raised eyebrows and a shake of the head, but this is no laughing matter. Big decisions – on interest rates, currency, investment plans – depend on knowing what is going on, and what are the likely trends.

That requires reliable data and the worry is that “surveys” rely too much on instant telephone responses rather than detailed research; on what businessmen read in newspapers driven by a particular agenda (eg Brexit fears), even on whether it has been unusually warm or cold for the time of year.

The quality of response cannot be guaranteed, nor can the quality of questions. I can vouch for this as I have taken part in numerous surveys and the questions are often quite ridiculous, meaningless or ambiguous.

Many surveys are too short term, and take too little account of changing or unusual circumstances. This latest poll refers to orders not being placed or being cancelled. Surely this was predictable, just ahead of the EU referendum when everyone was awaiting the outcome.

At least we can look forward to the next survey. All those postponed orders will no doubt come flooding back now we know the result of the EU vote. We should also have a verdict from the Bank of England on interest rates, although there may be another survey in the meantime that will make the monetary policy committee delay just one more month before making a decision.

However, the betting favours a rate cut. That means the next survey should be more positive (because everyone will feel better off, even if they aren’t). It may even predict a spending boom in the run-up to Christmas.

Amidst all this knee-jerk nonsense (aka “research and analysis”) the Bank and the Treasury somehow have to come up with a sensible economic strategy.

Good luck to them.

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