While the 0.2% q/q decline in GDP in Q2 and the further falls in the IHS Markit/CIPS activity PMIs in August mean that there is a real risk of a recession, there are reasons to believe that GDP will rise in Q3 and a recession before Brexit will be avoided. We estimate that the underlying rate of GDP growth is around 0.2% q/q. And as car manufacturers worked in August when they would normally have been on holiday (the break happened in April instead in case there was a no deal Brexit back then), that will provide an extra boost to GDP of between 0.1% and 0.2% in Q3. Of course, what happens in Q3 is small beer compared to what could happen if there’s a no deal Brexit on either 31st October or, due to the Bill delaying Brexit currently going through Parliament, on 31st January. That’s when a recession is most likely, albeit perhaps a shorter and shallower one than most appear to fear.
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