The working assumption here is that the UK economy has slowed sharply but will continue to grow over coming quarters. In assessing the validity of this assumption, particular weight will be given to 1) official vacancies data, which should give an early signal of any contraction, and 2) narrow money trends, which are relevant for assessing spending intentions and prospective activity six to 12 months ahead. July vacancies and money supply numbers will be released on 17 and 30 August respectively.
A default view of continued expansion, rather than stagnation or recession, is adopted because 1) robust monetary trends at mid-year suggest that economic prospects were solid before the Brexit vote shock, 2) global momentum is judged to be strengthening, with positive implications for UK activity via trade and confidence effects, and 3) domestic financial conditions have loosened since the vote – an assumed tightening was a key component of “Project Fear” negative economic scenarios.
The default view is challenged by the plunge in the PMI composite output index in July to a level consistent – according to the index compilers – with economic contraction. Historical evidence, however, suggests that the PMI overreacts to “shocks” – plunges to similar levels occurred in 1998 (Russian default / LTCM crisis), 2001 (New York terrorist attacks) and 2003 (Iraq war) but economic expansion continued. The current level of the output index is less important than whether it stages an early recovery, as it did after the prior shocks – see first chart.
An alternative survey-based measure with a shorter history but a similar correlation with contemporaneous quarterly GDP / GVA* changes is the CBI’s expected growth indicator, based on its polls of services, manufacturing and distribution that feed into the EU Commission’s economic sentiment gauge. The July reading of this indicator was above a level suggestive of economic contraction – second chart.
An important question, therefore, is whether the current divergence of the PMI and CBI indicators will be resolved by the former recovering or the latter sliding further.
The PMI and CBI indicators represent “soft” economic data – they are diffusion indices of “better” versus “worse” responses, rather than measures of the magnitude of economic change. The first significant “hard” (quantitative) data to be released for July will be claimant-count unemployment and vacancies (three-month moving average), due on 17 August. July output numbers will not be available until next month – industrial, construction and services data are scheduled for release on 7, 9 and 30 September respectively.
The vacancies series, in particular, should provide an early warning if the default view here is wrong and the economy is starting to contract. The third chart shows vacancies and claimant-count unemployment over 2008-09. GDP fell from a peak in the first quarter of 2008 to a trough in the second quarter of 2009. Vacancies tracked this decline, moving from a high in February 2008 to a low in May / June 2009.
Claimant-count unemployment is a useful confirming indicator but lags vacancies – businesses can adjust their recruitment plans instantly but take time to shed workers. Unemployment started to rise in April 2008 – one month after vacancies began to fall – and continued to climb until October 2009.
The timely recession signal from the vacancies series in 2008 is further illustrated by the fourth chart. Based on the estimated relationship, a contraction in GDP / GVA would be suggested if vacancies fell by 4% or more over three months. There were 747,000 vacancies in the three months to June, so this implies a decline of 30,000, or 10,000 per month. 
The official vacancies series will be the focus of attention here but a monthly fall on this scale is not suggested by the July reading of the Reed job index, a tally of online listings on reed.co.uk, the UK’s largest job board. The fifth chart compares this index, and an earlier online jobs measure compiled by Monster (discontinued in 2012), with the official series**. The Monster / Reed indices have exhibited stronger trend growth, reflecting a structural shift towards online recruitment, but have broadly tracked the official series: the peak and trough months of the Monster index in 2008-09 were the same (February 2008 and June 2009). The Reed index fell slightly between May and June but was little changed in July.
*GVA = gross value added.
**The Monster / Reed indices have been seasonally adjusted.