Animal spirits are key in a post-Brexit world

The economic data on post-Brexit Britain is beginning to emerge. We discovered last month that employment in May to July grew by 174,000 compared to the previous three months. Last week, the Office for National Statistics published its estimate for the output of the service sector of the economy in July. This shows a 0.4 per cent rise on June, and a growth of 2.9 per cent since July last year. Both are very good figures.

Official data, even for employment, is notoriously prone to subsequent revisions. Is there any harder evidence that the economy is prospering and that Project Fear, so prominent in the referendum campaign, was wrong?

The key to a growing economy is of course confidence. This was the great insight of Keynes. The economy is driven much more by psychological factors – by his memorable phrase “animal spirits” – than by objective economic ones. If confidence becomes depressed, no amount of stimulus will persuade businesses to spend on their investment plans or hire more people.

My colleague Rickard Nyman has been analysing tweets in the London area every day from the beginning of June. Now, there is an awful lot of rubbish on Twitter, but the latest machine learning algorithms enable you to dive into the mud and come up with pretty polished estimates of overall sentiment. The day after the vote, 24 June, stands out as one huge hangover. The balance of London sentiment went very sharply negative. Yet by the end of June, it was back to where it stood at the start of the month. Sentiment wobbles along for the rest of the summer, but since the start of September a strong positive upward trend has set in.

Most tweets of course are about the fortunes of Arsenal, going on holiday, what was on TV, and not directly about the economy. But the overall mood of Londoners has become much more positive over the last few weeks.

More evidence of positive feelings was provided at a seminar organised last week by the law firm Linklaters and the property outfit Strutt and Parker. The focus was on commercial property, which is notoriously sensitive to the state of the economy. There is no doubt that the sector took a hit immediately after the Brexit vote. But every speaker, from quite different backgrounds, struck a decidedly optimistic note about both commercial property in particular and the UK in general.

Andy Martin of Strutts noted that the value of deals in 2016 is on track to be close to the levels of 2007, the pre-recession peak year for the economy, despite the sharp pause in the summer. Both Zach Vaughan from Brookfield, one of the largest investors in global real estate, and Chris Morrish, recently retired as head of European real estate for Singapore’s sovereign wealth fund GIC, confirmed the continued strong attraction of the UK for overseas investors.

A coherent picture emerges from this diverse mix of official statistics, social media conversations and global commercial property perspectives. The UK economy is thriving.