Hamish McRae: Summer clues to judge fallout from Brexit

Among the more forward-looking indicators are numbers from the CBI for industrial trends, and on Wednesday for retail sales, the distributive trades survey. Taken together, both will give rather a good indication of the mood of consumers, and this matters because consumption is nearly 70% of the economy. If people keep buying, the economy keeps growing and vice-versa.

The only caveat is that both surveys are about what people say and think, not what they do. When you get a big shock to the economy, it is better to go by what people do. As we have seen, people do not always tell the truth to pollsters. There will also be consumer confidence figures out on Friday, and the same caution applies.

If you focus on what people are doing, there are the weekly John Lewis sales numbers, which have not been too bad, and tomorrow we get mortgage approvals. If people are still moving house, or planning to do so, that too suggests confidence is all right — or at least not as bad as the dreadful purchasing manager indices that came out last Friday. They gave a signal that the economy was likely to contract in next few months, the only redeeming feature being that the way these PMIs are constructed may overemphasise the impact of shocks.

If a large number of respondents are mildly, but only mildly, bearish, that skews the index. There is, however, no getting away from the fact that PMIs are the best indicator we have of the future trend of output and if they are bad, well, that is bad news indeed.

The second question is what is happening to the world outside Britain. We have become particularly myopic for obvious reasons. But the general truth remains that if the world economy goes on growing, it is quite hard for any individual country to have a recession, and if the world economy tanks it is quite hard to avoid one. We get second-quarter GDP numbers for the US and the eurozone, which again give a base for the situation before Brexit. But in this case, these are a better guide to the future because there is no evidence that confidence outside the UK has taken a hit. (Those bad UK PMIs contrasted with positive numbers for the US and OK ones for the eurozone.)

Positive news from the US will be particularly welcome because of the size of the economy. In recent weeks, there has been decent support from the housing market — the driver, there as here, for consumption. Tomorrow we get the Case-Shiller index, an indicator of what is happening across the nation’s housing market. Have dysfunctional politics led to a dysfunctional property market? The evidence seems to be quite the reverse — expect that to be confirmed by these numbers.

And the third question: hard Brexit or soft Brexit? Well, there is a good paper just out from the Adam Smith Institute arguing for the soft version, the theme being that membership of the European Economic Area (like Norway) could be constructed to give substantial additional freedom for policymaking, while de-risking the threat to the economy.

It will take years to negotiate a bespoke deal, whereas EEA membership (which allows us to negotiate trade deals with other countries) could be agreed very quickly. But we do get out of the EU. Given that the new Government has to find a way of satisfying the 48% as well as the 52%, this does make sense. So let’s see what sort of resonance this report gets. I for one wish the idea of EEA membership a fair wind.