Brexit latest: How is the UK economy doing?
The UK may have voted to leave the European Union on 23 June but it is not yet clear what this vote, and the country’s subsequent path to Brexit itself, will actually mean for the economy.
Here we highlight the latest developments following the vote.
Many economists prior to the referendum had been predicting an immediate and significant impact on the UK economy and consumer confidence should the country vote to leave the EU. But this is a prediction that has not been borne out by the figures so far.
Whatever caution businesses may be feeling when it comes to future planning – as a nation of shoppers we seem to be keeping calm and carrying on spending.
UK consumers spent more on credit cards in July compared to June, says the British Bankers’ Association (BBA), with 168 million credit card purchases during the month – a higher figure than the previous six months’ average.
Warmer weather and a weaker pound helped UK retail sales in July gain 5.9% on the same month last year, a boost in High Street sales that was also highlighted by the British Retail Consortium (BRC) and KPMG survey.
Strong growth in spending by consumers helped to drive the UK economy ahead of the Brexit vote, with consumer spending in April to June 0.9% higher than the previous quarter, according to official figures. It’s the fastest growth rate since 2014.
While it’s true that inflation has since gone up, with the Consumer Prices Index (CPI) rising to 0.6% in July – largely due to higher fuel prices as they’re priced in dollars – there was “no obvious impact” on this from the vote, said the Office of National Statistics (ONS).
The UK’s manufacturing output eased in the three months to August, according to the CBI, but it said the sector was still expanding at a much faster rate than in the spring.
Looking at roughly the same sector, but over a different time frame, the ONS said that UK industrial output grew at its fastest rate for 17 years in April to June, up 2.1% on the first quarter of the year. The ONS said “very few” respondents had been affected by the uncertainty from the referendum.
Elsewhere, the eurozone economy is still expanding despite the supposed shock of the UK’s Brexit vote. Eurozone economic activity was at its highest for seven months in August, according to Markit’s Purchasing Managers’ Index (PMI).
Since the vote the Bank of England has taken a number of steps to boost the UK economy. It has cut interest rates from 0.5% to 0.25% – it’s the first reduction in the cost of borrowing since 2009 and takes UK rates to a record low.
The Bank has also announced additional measures to stimulate the UK economy: a huge extension of its quantitative easing programme that could pump an extra £170bn into the economy, and a £100bn scheme to force banks to pass on the low interest rate to households and businesses.
One effect of the interest rate cut is that it has exacerbated the growing pension funds deficit because of falling bond yields. As yields fall it reduces the incomes pension funds get from their investments.
Sterling has fallen significantly since the vote, driven by uncertainty about Britain’s economic outlook and its future relationship with the rest of the EU. The drop has been accentuated by the cut in interest rates and the Bank of England’s economic stimulus measures.
Against the dollar, the pound is now worth about $1.30. A year ago it was worth $1.57 – a fall of 17%. Against the euro, it is now worth about €1.15. A year ago it was worth €1.35 – a fall of 14%
One beneficiary of cheaper sterling has been the UK’s own tourism sector, as a weaker pound makes Britain a cheaper destination for overseas tourists. The travel analytics firm ForwardKeys says flight bookings to the UK rose 7.1% after the vote.
Caissa Touristic, a tour operator specialising in Chinese travel to Europe, says it’s seen a 20% increase in enquiries and bookings for the UK this summer compared with the same period last year.
And it’s not just London which is benefitting. Irish no-frills airline Ryanair says it has seen a boost in overseas visitors travelling to Manchester, Liverpool, Leeds and Scotland as well as the capital.
Figures from the ONS suggest that the fall in the value of the pound since the vote has increased the cost of imports for manufacturers.
Input prices faced by manufacturers rose 4.3% in the year to July, compared with a fall of 0.5% in the year to June.
The most dramatic rises came in the cost of imported food materials, which rose 10.2%, and the price of imported metals, which rose 12.4%.
The fall in value of sterling has led some economists to warn of signs of inflationary pressures building in the UK as it puts up the costs of imports – not just for retailers but also for many manufacturers who source components and raw materials from overseas.
Property buyers are still going ahead with purchases despite uncertainty in the UK housing market following the Brexit vote.
Gross mortgage lending edged down to £21.4bn in July – 1% lower than the same month last year and almost identical to June – according to the Council of Mortgage Lenders (CML).
This follows the latest July sales figures from HMRC which showed that 16,000 fewer homes were sold in the month compared with July 2015.
This slight yearly drop in sales is also reflected in the recent survey from the Royal Institution of Chartered Surveyors (Rics), which found there had been a significant slowdown in price rises in the three months to the end of July.
Meanwhile there have been mixed signals about the UK housing market from the Halifax and the Nationwide Building Society.
UK house prices fell 1% during the month of July, says the Halifax; they rose by 0.5% according to the Nationwide. The Halifax says annual house price inflation is 8.4%, the Nationwide says 5.2%.
But it’s a different story when it comes to commercial property. Demand for London office space has bounced back from a pre-referendum dip, according to the commercial property firm CBRE.
The amount of space being taken by firms in the capital rose to almost a million square feet in July – up 24% on June.
Earlier, in its August inflation report, the Bank of England suggested that uncertainty had “probably weighed on activity” and that house prices would “decline a little over the near term”.
UK construction output fell in June but there is “little anecdotal evidence” of a Brexit impact, says the says the ONS. This contrasts with the Markit/CIPS purchasing managers’ index (PMI), which suggests construction output in July shrank at its fastest since June 2009.
Building suppliers firm Travis Perkins says the vote has created “significant uncertainty” in the outlook for its business.
However, the Mineral Products Association, which represents firms making products such as asphalt and cement, said its figures pointed to an upturn in the industry.
Total UK unemployment dropped between April and June in the run-up to the vote, with the jobless total down by 52,000 to 1.64 million – leaving the unemployment rate at 4.9%.
But little of the data covers the period since the vote, so it’s not yet possible to draw any conclusions about the referendum’s impact.
Elsewhere, a Markit/REC survey suggested the jobs market suffered a dramatic slowdown in July, with permanent hiring dropping to levels not seen since the 2009 recession.
When it comes to individual firms and jobs, the picture is mixed.
The world’s biggest security firm, G4S, warned that the UK’s workforce and economic growth may shrink, and one of Britain’s biggest banks, Lloyds, has accelerated its job cuts, axing a further 3,000 posts – although it said it had made this decision before the referendum.
Other firms have announced new jobs: pharmaceuticals firm GlaxoSmithKline is investing £275m in the UK, McDonald’s is creating 5,000 new jobs, and London financial services company Tullett Prebon is creating 300 new IT jobs.