What’s Going On Here?Fresh data released last week showed economic activity in the UK picked up by more than expected this month, while a far-less-successful eurozone gave Britain some side-eye. What Does This Mean?Economists pay a lot of attention to monthly surveys asking business managers what they’ve been up to, as they’ve typically been a good way to gauge the level of economic activity in a country. And they’d have been surprised by January’s results, which suggested the UK economy has returned to growth after last year’s shrinkage – at a higher rate than predicted.
The eurozone’s survey, on the other hand, showed economic activity fell short of economists’ expectations. And although activity in Germany (the region’s largest economy) picked up, it was offset by a drop-off in France (the second-largest) where strikes hampered its services sector. Quelle surprise. Why Should I Care?For markets: Interesting rate decisions.
Investors will try to use last Friday’s update to anticipate Thursday’s UK interest rate decision, as the former influences the latter. At the start of the year, not many of those investors expected rates to change at all this month. But as weak economic data rolled into Britain, so too did expectations of an economy-boosting cut. It’s not a foregone conclusion, though: following this strong data, investors now reckon the probability of a rate cut has fallen to around 50% from almost 70% a week ago.
The bigger picture: Survey says… eh-ehhh.
“Soft” data (like surveys) give investors an indication of what “hard” data (like economic growth) will be, but it’s by no means a direct relationship. Recent elections and economic updates have shown that recent surveys have lost much of their predictive power. And besides, with the UK set to leave the European Union at the end of this month, Britain’s economic growth probably depends more on its future relationship with Europe than on clues provided by surveys. | 
