This is, to say the least, a stretch. It’s not simply that it’s early days, though that’s certainty the case. (We haven’t even begun to talk about the terms of EU withdrawal as yet, let alone those of any new arrangements.) It’s also that many economic indicators are in general very noisy, even at the best of times. Retail sales, for example, are estimated to have fallen by 0.2% between July and August. Is this meaningful? Not really. The index is extremely volatile – the average monthly change in retail sales volumes is over a percentage point – and poorly correlated with quarterly GDP, even with consumption growth specifically. Looking at a broad range of indicators, there’s certainly nothing I can see to disturb the MPC’s view in August that consumer spending will be relatively unperturbed by the referendum result, and that it will continue to grow in line with household income. (Real household income growth is itself likely to decline slightly, as the benefit of falling commodity prices fades, but that’s a separate effect, one that would’ve occurred whatever the result of the referendum.) Business investment we expect to be more affected, for the reasons I’ve gone through today. But this too is a volatile series, one that’s also subject to significant revision: almost half the mature and early estimates of quarterly business investment growth actually have different signs. So if an early estimate points to a very large move, or if you see a trend over several quarters, it’s worth paying attention to.
-5 Aug IR May IR Business investment (LHS) UK uncertainty indicator (RHS)  -2  10 0  1  -10 -20 1985 1990 1995 2000 2005 2010 2015 Source: ONS and Bank of England calculations  4  Source: ONS and Bank of England calculations  1  I’ve excluded the World War periods because investment growth was so volatile it would have dominated the graph. During World War II investment fell almost to nothing. In 1945 this remained quite low, so in 1946 its growth rate jumped to 1,894%! 3  All speeches are available online at www.bankofengland.co.uk/publications/Pages/speeches/default.aspx  3  One obvious reason for the volatility of investment is the natural gearing in such decisions. The flow of 2  investment spending is much smaller than the existing stock of capital . So small changes in the second can require big moves in the first. Suppose, for example, you regularly spend a steady but relatively small amount on repairs and maintenance for your house – something that counts as investment – and then decide, in one particular year, that you want to build an extension. This will have a much bigger proportionate impact on the flow of your capital spending than on the size of the building (the “capital stock”). It will also mean your investment spending is far more volatile, from one year to the next, than your consumption. Similarly, small shifts in a firm’s desired capital stock require much bigger proportionate changes in investment.