It is fair to say that 2019 was not a golden year for the UK economy.
GDP growth is likely to have come in at just 1.3%, the same as in 2018, making both years the weakest for economic growth since the UK emerged from the global financial crisis a decade ago.
Towards the end of last year, meanwhile, there were even signs that things were getting worse.
The Office for National Statistics reported last month that the economy failed to grow during the three months to the end of October.
That was days after the Purchasing Managers Index (PMI) survey – in which anything above 50 represents growth and anything below that a contraction – suggested that, in November, activity in the services sector suffered its sharpest drop in eight months.
That, along with the weakened state of the construction and manufacturing sectors, strongly suggested that the economy could have contracted during the final three months of the year.
That sense was added to when IHS Markit, which compiles the PMI survey data, published so-called ‘flash’ PMI figures just before Christmas.
These pointed to a decline in private sector output in December for the second month running due to weakness in both services, which accounts for four-fifths of UK GDP, as well as manufacturing.
Today, however, brought more positive news. The services PMI data for December came in at 50 on the dot, still pointing to activity in the sector flat-lining, but significantly better than not only the November figure of 49.3 but also the December ‘flash’ number of 49.0, which was a nine-month low.
Within the survey, meanwhile, there were a number of promising indicators. Business optimism, in the words of IHS Markit, “rebounded” to its highest since September 2018.
Job creation in the sector improved to its strongest level in five months. And there was also a modest increase in new work for companies in the sector as order books improved by the greatest extent since July.
Tim Moore, economics associate director at IHS Markit, said: “It is notable that the forward-looking business expectations index is now the highest since September 2018 and comfortably above its ‘flash’ reading for December.
“The modest rebound in new work provides another signal that business conditions should begin to improve in the coming months, helped by a boost to business sentiment from greater Brexit clarity and a more predictable political landscape.”
The figures shine a light on how businesses may be viewing the world since the general election.
The PMI figures are based on questionnaires sent to purchasing managers to ascertain their opinions on the state of their sector and the ‘flash’ figures, which are aimed at providing an advanced indication of the final numbers, are generally based on around 85% of the answers.
In the specific case of December, the ‘flash’ figures published before Christmas were compiled on responses from purchasing managers before the election, whereas the final figures published today also included responses since the general election.
That means the improvement from the ‘flash’ figures can be specifically put down to the election.
The political gridlock since the 2017 election directly hit economic activity. The paralysis in Westminster, which led to the original Brexit deadline of 29 March being delayed to 31 October, which was also delayed, resulted in investment and hiring decisions being postponed, inevitably having a knock-on effect elsewhere.
But the fact that the election has delivered a decisive majority for one party, for the first time since 2005, has delivered an element of certainty for business leaders – not only over Brexit in particular but over the wider economy in general.
It also lifts from businesses the threat, as many of them saw it, of a government led by Jeremy Corbyn.
The big question – one which has been exercising economists over Christmas – is the extent to which the economy will continue to enjoy a so-called ‘Boris Bounce’ into 2020.
Howard Archer, chief economic adviser to the EY ITEM Club, said: “Ongoing contraction in activity in December was perhaps to have been expected, given the particularly elevated uncertainties that faced the economy ahead of the general election that took place on 12 December.
“Indeed, it was reported that activity was hampered by some companies delaying business and new orders ahead of the general election.
“However, there were signs in the survey that some new business was already being placed after the decisive election result with the new orders index revised up.”
Duncan Brock, group director at the Chartered Institute of Procurement & Supply – which helps compile the PMI figures – added: “With the fastest level of job creation since the summer and a bounce in business optimism not seen since September 2018, commentators could be forgiven for believing there could potentially be a turning point on the horizon if the UK plays its cards right.”
Other pointers to a pick-up in activity have come in recent days from the housing market.
Nationwide Building Society reported late last week that, in December, UK house inflation rose to 1.4% on a year-on-year basis – the first time in a year that it has been above 1%.
Estate agents suggest this is an early signal that confidence is returning to the housing market and they, too, think it may be something to do with the end of the sclerosis in Westminster.
There have also been some encouraging signs in the handful of post-Christmas trading statements issued by retailers. Mountain Warehouse, the fast-growing outdoor clothing retailer, has reported record Christmas sales while Next reported figures last Friday that were better than expected.
The latter’s chief executive, Lord Wolfson, said: “We do not think the consumer is in a bad place. We have real growth in wages, growing employment and low interest rates.”
Yet any recovery may well be fragile.
The assassination of Iran’s most senior military commander by the United States last Friday has rattled stock markets and sent up oil prices. If that increase remains in place for a while, it will act as a tax on both consumers and businesses, stifling activity.
And, once the UK has left the EU on 31 January, attention will turn to the likelihood of the UK and the EU completing a trade deal before the transition period is due to come to an end on 31 December.
In the absence of positive news it is likely that, once again, businesses will start to put investment and hiring decisions on hold.