Britain’s vote to leave the EU is finally trickling down to the UK economy, according to analysis by the Guardian which shows rising inflation is offsetting buoyant trade for businesses.
Buoyant consumer spending, low unemployment, rising property prices and continued growth in the country’s dominant service sector point to a strong end to the year, defying earlier Bank of England forecasts and others that the economy is paralyzed.
But concerns are growing over the outlook for 2017 as signs emerge that the Brexit vote hit to the pound is fueling inflation and hurting people’s purchasing power.
As the start date for EU exit talks approaches, the pound has come under renewed pressure in recent weeks and has been subject to further declines with every political mention of Brexit – most recently from the Scottish Prime Minister Nicola Sturgeon talking about the prospect of another vote for Scottish independence.
To track the impact of the Brexit vote on a monthly basis, the Guardian chose eight economic indicators, along with the value of the pound and the performance of the FTSE.
The December scorecard shows better-than-expected performance in four of the eight categories. Two were as expected, one was worse and inflation was higher than economists expected, stoking fears that household budgets will be squeezed by higher prices next year.
Six months after the vote to leave the EU, the latest figures show that wage growth remains solid, overall unemployment remains low, business activity continues to expand and house prices continue to rise. ‘to augment. The FTSE 100 core stock index is near an all-time high in October and the more domestically focused FTSE midcap index is above its pre-referendum level.
But the pace of hiring has slowed, retail sales growth has slowed and inflation is at a two-year high as the weak pound raises the cost of imports into the UK. Public finances were in a worse state than expected in November and, going forward, they are expected to be in deficit for much longer than expected before the referendum.
Britain’s trade position has improved more than expected in the latest monthly figures, but substantial revisions to earlier data show the trade gap with the rest of the world hit a nearly three-year high in the three months following the referendum.
Economists point to several indicators suggesting the negative effects of the Brexit vote could be felt harder in 2017. Surveys and business investment figures suggest UK-based companies are more reluctant to spend. Consumers have become more cautious and expect inflation to pick up over the coming year.
Writing in the Guardian, a former member of the Bank’s monetary policy committee, David Blanchflower, said some of the data since the Brexit vote was better than he feared, but there were signs that it could be as good as possible for the economy.
“Business confidence is weak and there is evidence that optimism is down among businesses and consumers. I suspect the news is not going to improve,” said Blanchflower, professor of economics at Dartmouth College at the University. United States.
“The consumer has held up pretty well and still seems to be spending and GDP growth at 0.5% is not to be overlooked. imports were always going to have an impact,” he added.
A report from the Bank of England’s regional officials on Wednesday flagged the impact of rising import prices on inflation. But agents – the Bank’s eyes and ears on the ground – noted the upside of the weaker pound. Spending by tourists was increasing and exports had also been boosted by the falling currency, which makes British products more competitive overseas.
Since the last scorecard, independent government forecasters at the Office for Budget Responsibility (OBR) have released new outlooks for the economy. They predict that lower business spending and pressure on consumers from higher inflation will hurt the economy next year, but warnings of a post-referendum recession are likely to prove unfounded.
Publishing its forecast alongside Philip Hammond’s fall statement on tax and spending measures, the OBR said the economy was likely to grow just 1.4% in 2017, down from the 2.2% it predicted before the referendum. Hammond, was quick to point out that even this weaker growth would leave Britain overtaking France and Italy next year and possibly Germany as well.
Andrew Sentance, also a former member of the MPC, said signs of weaker investment and employment and a squeeze in consumer spending pointed to slower growth in the UK economy next year. But much depended on the country’s main trading partners, the rest of the EU and the United States, Sentance wrote in the Guardian.
“Current forecasts suggest that Europe and the US will continue to grow reasonably well in 2017, which will help temper the slowdown in the UK. Next year may not be so bad for the UK after all, but we will need a reasonably healthy global economy to keep going.
Experts have warned that Brexit’s potential hit to the economy, coupled with the government’s continued efforts to cut spending, will leave many households struggling with lower incomes next year.
Mark Carney, the Governor of the Bank of England, warned that the UK was suffering from its “first lost decade since the 1860s” and pointed to a squeeze in household budgets prior to the referendum.
A respected think tank, the Institute for Fiscal Studies, said British workers are facing the longest wage squeeze in 70 years. This week, the Resolution Foundation think tank warned that the UK risks a return to the real wage squeeze suffered at the start of the decade next year. He said 2015-16 had been the fastest year of real wage growth since 2001, but said the combination of low inflation and strong employment growth would not be repeated.
For the housing market, forecasters expect a slowdown next year. A long-standing housing shortage will mean prices will continue to rise, but at a much more modest rate of 3%, the Royal Institution of Chartered Surveyors predicts. Property company Savills has suggested prices will remain stable across the UK. The UK’s largest building society, Nationwide, expects the average price in the UK to rise 2% over the year, below the growth rate it recorded in 2016 .