The latest business data is bad news, but the reasons given spell a good omen

This morning there was some bad news for business, but which definitely comes with a silver lining. So, the bad news first: the ‘Flash UK Composite Output Index’ from data firm, Markit, which tracks private sector business activity, found that it shrunk during the month of December. It has dropped to 48.5 – where anything below 50 indicates contraction. However, in its press release, Markit said the following: “Survey respondents overwhelmingly attributed lower business activity to a combination of domestic political uncertainty, a lack of clarity in relation to Brexit and subdued global economic conditions.” As even the Guardian points out, “at least two of those problems are now resolved!” It’s worth digesting the news soberly though, because it means that we are not out of the woods yet. The release went on to say that the rate of decline was the fastest recorded since July 2016, and December data pointed to lower volumes of service sector output and a “much sharper” drop in manufacturing production, “with the latter falling to the greatest extent for almost seven-and-a-half years”. Markit’s chief business economist had this to say: “The principal drag on order books was falling export sales, with overseas demand for UK-produced goods and services slumping in the past two months to an extent not seen since at least 2014.” And Duncan Brock, group director at the Chartered Institute of Procurement & Supply, said this: “The continuing Brexit-related aversion to investment and a pre-election lack of consumer confidence led to the fastest fall in business activity in December since July 2016. “European orders continued to dry up along with new jobs as the addition of a slowing global economy made trading conditions all the more challenging for both sectors.” So it’s clear there is a Brexit angle to this data, which was compiled before the election result was known, and so I think we can conclude that if some of these issues are successfully addressed by Boris Johnson with his new majority Conservative government, the data might improve in Q1. It’s important to remember we still also have the issue of non-Brexit influences on market performance, which in the drama of the last few weeks has been easy to overlook. They include the usual pressures on retail such as business rates and competition from online retailers. For many small businesses, these final nine days in the run up to Christmas will be absolutely crucial.