The Remoaners are continually on the lookout for any statistic that proves the vote to Leave the European Union was bad for Britain. Obviously there will be some statistics, which show a sharp change in economic statistics but are the conclusions correct about why and what they mean for the future.
The Purchasing Managers Index accumulates dates on purchases by large organisations and generally follows what is going on with international exchange rates and what is going on with manufacturing materials demand and consumer spending.
The correlation between purchasing and the economy is quite good over periods of 91 days, equating to quarters of the year but in itself does not provide a prediction for the future. It doesn’t tell much when sharp increases or reductions in purchasing occur due to an economic event or how quickly things will return to normal.
The Remoaners have jumped on a sharp downturn in purchasing following the vote to Leave the EU that the economy has taken a massive hit and this is the proof they have been looking for that Britain is now diving into recession.
Actually it is nothing of the sort. It tells us no more than the numbers, which in the short term Purchasing Managers have dramatically stopped buying. Is it because they believe the products they make or sell are going to stop being required therefore they have to ramp down production or reduce stock in the warehouse?
The Leave result was a shock to everyone, Leavers and Remoaners, no one more so than Boris Johnson who ran a lacklustre campaign in the hope it would fail but at the same time raise his profile as a possible replacement to David Cameron. He really didn’t expect the result and was clearly not willing to accept the job of getting us out of the EU.
Nevertheless there is a justifiable period of uncertainty, not being helped by the head of the Bank of England Mark Carney, who threatens to reduce interest rates, causing the value of the pound to sink further, then decides not to reduce them.
I would like to have his job, probably earning well in excess of quarter of a million pounds a year to study economic statistics then have a meeting with the monetary policy committee and after much deliberation decide to do nothing month in and month out for over six years.
I have run a business designing and manufacturing radio equipment for radio amateurs, short wave listeners, and CB enthusiasts, and community radio stations since October 1978. During that time I have found year on year that it was impossible to predict surges in sales nor short-term reasons for decline of sales except when society is in a period of fear or uncertainty.
There was a massive reduction in sales when we went to war in the Falklands, and during the foot & mouth crisis and during the BSE epidemic. These last two may have had more effect on my business than on others because of the use of CB radio equipment in tractors. The farmers just stopped buying because many of them faced ruin along with their herds. It also occurred to a lesser extent when we went to war in Iraq because there was little doubt that it would not be a protracted war.
We presently are under threat of terrorist attacks that are now occurring regularly across large European cities and the people are a bit scared. There have been shootings and killings in Britain as well and most recently an attempt to kidnap or abduct a runner near an airforce base in Norfolk.
These things are NOT being caused by the Leave the EU result and the rise in terrorist attacks is a direct consequence of the war being won against Daesh in Syria. The people of Europe are rightly becoming both scared and angry about this terrorism and here in Britain we have already suffered it before with the attacks by the IRA and then the London bombings a few years ago now. The next can be anytime soon!
There is no final solution to either Al Quaida or Daesh as fanatics can continue to develop forever, regardless if the primary organisation essentially ceases to exist. Now that Europe has let in millions of middle-eastern people of Muslim belief to whom we are infidels, any one of them, male or female might become a terrorist. They are a bit like a hand grenade, perfectly stable and safe until someone pulls out the pin.
So that is a good reason why people might hunker down and stop buying non-essentials and is has happened to my business dramatically over the last two or three months. It didn’t suddenly drop after 23 June as sales were already quite depressed.
This is because my business is for hobby use and there were other distractions as well. There was the ongoing debates and news coverage of the referendum campaign, then there was tennis at Wimbledon, and in between it increasing number of terrorist attacks across Europe and shoot-outs between black men and the police in the USA.
The vote to Leave the EU did have an immediate reaction, which was a fall in the value of the pound. As a small business owner making products that are quite old technologically I need components that are becoming increasingly scarce in the West but still exist in the Far East.
Over the last two decades whenever I have run low on a part I have looked to purchase from the Far East a supply large enough to last the expected lifetime of the business. I make these purchases when I need them and when the pound is strong against the dollar. If there is a problem and the pound value is poor against the dollar I delay the purchase until the pound regains strength.
What the Purchasing Managers Index (PMI) is telling us is not that the economy has already gone down the pan or that it is likely to continue that way but that with the pound value depressed it is time to defer purchases. What we don’t need is an overpaid head of the Bank of England making statements and prophesies that keep the pound low in value.
As a buyer I realise that if the pound does not start a steady rise against the dollar I have to come to terms with a new reality and pay a bit more for imported component parts. Ultimately if the new norm is around $1.32 = £1 instead of $1.42 = £1 then ongoing purchases will cost about 10% more and to maintain the same profit will require increased retail prices.
Unfortunately the very act of splashing the PMI data across the media as proof the economy is going into recession is exactly the thing that is likely to depress the pound further and make that prediction a reality. It is a case again of the Remoaners shooting Britain in the foot because they are unwilling to come to terms with the reality that more people than have ever voted in any election or referendum in Britain have voted to ignore the economic prophets of doom.