Recent posts have argued that the consensus is misreading the monetary data and underestimating the degree of stimulus to asset markets and the wider economy from the current policy stance. News this week supports the view that economic performance and prospects are improving significantly.
First, a monthly GDP estimate based on services and industrial output data rose by 0.1% in July after a 0.3% June gain, to stand 0.2% above its second-quarter average – see first chart. With business surveys suggesting a further recovery and upward revisions possible, GDP may have grown by as much as 0.5% in the current quarter (preliminary figures will be released on 23 October).
Secondly, the EU Commission measure of consumer confidence vaulted higher in September and is now only marginally below its long-term average. UK confidence has recovered much more strongly than in other major economies – second chart. In addition to becoming more optimistic about the economy and their own finances, households are signalling reduced concern about labour market weakness, suggesting that unemployment could peak earlier than many expect.
Thirdly, the number of upgrades to company earnings forecasts by equity analysts is exceeding downgrades by a widening margin, which is usually a sign of rising economic momentum. The "revisions ratio" (i.e. net upgrades divided by the total number of earnings estimates) correlates with business surveys and suggests further improvement in forthcoming purchasing managers' indices – third chart.
