The sense of gloom hanging over the UK economy may be further confirmed this week with the release of third-quarter economic growth figures. Meanwhile, however, earnings growth expectations for 17 per cent this year and 7 per cent next remain surprisingly strong.
These numbers, though, hide large disparities between sectors. Earnings estimates for the FTSE All-Share have risen each month for the last 12, and are a fifth higher than they were a year ago. This reflects the strong performance of the companies that dominate the top 100 oil and gas, banks and telecommunications.
The trend for mid- and small-capitalisation companies is starkly different. Next year's earnings estimates for the FTSE 250 have fallen by 2 percentage points over the last 12 months, and for the smaller companies even further. Allied Irish Bank says earnings estimates for the FTSE's 300-odd smallest companies are down by 15 per cent for 2005 and by 10 per cent for 2006.
Growing pessimism over smaller companies' prospects gives real-life credence to the more glum of UK macro-economists. The FTSE 100 companies earn three-quarters of their revenues overseas, whereas the FTSE 250 is dominated by sectors like software and computer services, construction and retailing, which are highly exposed to the domestic economy.
Independent forecasters are busily lowering 2005 and 2006 forecasts for the UK economy. The evidence from the companies that actually have to operate in it suggests the lower of these forecasts now seems the most realistic.