How has Brexit vote affected the UK economy? June verdict | Business


Mounting no-deal Brexit fears hit sterling

The rising likelihood of no-deal Brexit has dragged down the pound on the foreign exchanges over the past month, as the prospect of a no-deal-focused Boris Johnson as prime minister becomes more likely. Sterling had fallen sharply to less than $1.26 against the US dollar and to about €1.12 against the euro. However, the US Federal Reserve coming closer to being forced into cutting interest rates amid fears over a slowing US economy has dampened the strength of the dollar in the past week. This has helped to inflate the value of the pound. The outgoing head of the European Central Bank, Mario Draghi, also suggested that the eurozone requires more economic stimulus, which has sapped the strength of the euro.

Stock markets surge amid stimulus talk

Mario Draghi using one of his final speeches as ECB president to suggest that interest rates in the eurozone may need to be cut further has helped European equities power ahead over the past month. Increased stimulus can help the stock market to rise, as companies’ borrowing costs are cut. Investors have also become more positive about the chances of a resolution in the US-China trade dispute, after a prolonged period of concern over the standoff between Washington and Beijing. Although rate cuts from the US Fed could suggest a weakening economy, the prospect of stimulus from the US central bank has also lifted markets.

Meets forecast

Car price war and air fares cool inflation

UK inflation fell for the first time in four months, dropping back down to the target set by the government for consumer prices inflation of 2%, fuelled by a price war in the car industry and cheaper air fares. Economists said the slower annual increase in the cost of an airline ticket in May when compared with April was mainly due to the timing of Easter, when prices are jacked up around the public holiday. The drop in inflation is likely to offer households some much-needed respite after inflation spiked after the EU referendum, as the drop in the value of the pound pushed up the cost of imports to Britain.

Better than forecast

Brexit stockpiling narrows trade deficit

After ballooning as companies rushed to import goods to avoid Brexit disruption, the UK’s trade deficit – the shortfall between imports and exports – narrowed to £2.7bn in April from £6.1bn in March. Although suggesting that import and export volumes may be returning to normal, economists said the latest figures could indicate that firms in both the UK and on the continent now have unusually high levels of inventory, meaning they do not need to trade as much as would normally be the case. Export demand has also suffered in recent months amid a broader slowdown in the global economy due to the US-China trade dispute.

Worse than forecast

Business surveys paint weak growth picture

Surveys of business activity used as early warning signals for the British economy by the Bank of England and the Treasury suggested that UK economic growth remained weak last month. The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed that service sector activity, which accounts for four-fifths of the economy, strengthened in May, despite manufacturing and construction slumping into contraction amid heightened levels of uncertainty over Brexit. The IHS Markit/Cips services purchasing managers rose to a three-month high of 51 from 50.4 in April, following a rise in domestic orders. A figure above 50 indicates growth. Still, economists warned the pattern of growth remained close to stalling point.

Better than forecast

Jobs growth slows amid Brexit uncertainty

After months of employers appearing to shrug off Brexit concerns, jobs growth slowed in the three months to April. Employment in Britain increased by 32,000 to reach a record high of 32.75m, according to the ONS, significantly down on the 99,000 jobs added to the workforce in March. Driven by rising self-employment and women entering work, economists said the weak gains suggested that companies were becoming jittery about Brexit. The jobless rate has, however, remained at the lowest level since the mid-1970s, while annual growth in average weekly wages increased to 3.4%, up from 3.3% in March. Total average pay including bonuses rose by 3.1%, down from 3.3% in March, but beating economists’ forecasts for growth of 3%.

Worse than forecast

Cold weather in May damages retail sales

An unseasonably cold May prompted a sharp decline in summer clothing sales last month, raising fears over the strength of the economy as consumers reined in their spending. After months of appearing to shrug off Brexit concerns, retail sales fell by 0.5% month on month – the biggest decline in spending this year. Annual sales growth was 2.3%, worse than forecast by City economists. The ONS said cold weather led to clothing sales dropping by 4.5% from a month earlier, while economists suggested a rise in political turmoil could have also discouraged some consumers from spending money on bigger-ticket items.

Worse than forecast

Falling corporation tax revenue hits finances

Falling corporation tax receipts damaged the health of the public finances in May, which in turn fueled a rise in government borrowing. Public sector net borrowing widened to £5.1bn, about £1bn more than May 2018 and £1bn more than forecast by City economists. It comes as tax and spending decisions are likely to be given to a new chancellor after the Conservative leadership race. Philip Hammond, widely expected to be replaced, has advised the next prime minister to be prudent as Brexit could damage the health of the public finances. However, most of the hopefuls vying to replace Theresa May promised tax cuts and spending increases.

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Better than forecast

Brexit clouds fade for housing market

The Brexit uncertainty serving as a brake on the housing market appeared to ease last month, as a survey of chartered surveyors showed that prices picked up on relief that the UK hadn’t crashed out of the EU without a deal this spring. A gauge of house prices from the Royal Institution of Chartered Surveyors – which shows the difference between members reporting price rises and falls – improved to -10 from -22 in April. Although the strongest reading since October, analysts warned that concern over Brexit was still holding back some buyers and sellers.

And another thing we’ve learned this month … Brexit stockpiling set to fuel economic slowdown

Bank survey of business preparedness

After fuelling an upswing in economic growth earlier this year, the stockpiling rush ahead of the original Brexit deadline is poised to drag on the economy over coming months. UK firms face renewed risks around how to plan for no deal after the delay until the autumn. Some firms are likely to run down their stocks rather than place new orders, hitting growth, according to the Bank of England, as it slashed its forecast for the second quarter to zero from a previous rate of 0.2%. The Bank’s network of regional agents believes about a tenth will scale back their plans, while others will maintain theirs or ramp them up ahead of the autumn. Although Boris Johnson has urged Britain to do more planning for no-deal Brexit, most firms say they are “ready as they can be”, according to the Bank. However, the lack of clarity limits the extent to which they can be fully ready.


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