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

Sterling drops amid Brexit political chaos

The pound slumped to its lowest levels for almost two years over the last month amid the mounting political paralysis in Westminster. Sterling fell as low as $1.2484 against the dollar on the foreign exchanges after Theresa May delayed the parliamentary vote on her Brexit deal and faced a confidence vote in her leadership. City traders believed that May winning the vote, although as a severely weakened prime minister, reduced the chances that a hard Brexiter would take over control of the talks to leave the EU. Sterling is still about 15% below the value it held against the dollar and the euro before the EU referendum.

Brexit and global economy fears weigh on stocks

Financial markets around the world have been shaken in the past month by fears over the US-China trade dispute, slowing global economic growth and higher interest rates from the US Federal Reserve. The FTSE 100 has not been immune, while also having the added threat of no-deal Brexit to contend with. Weakness in sterling typically helps to pull up stocks in the blue chip index because it includes many international firms that make much of their profits in foreign currencies. The FTSE 100 has fallen by more than 4% in the past month. Retail stocks in particular have taken a knock, after a profits warning from the online fashion retailer Asos suggested firms might have been hit by weak sales in the run-up to Christmas.

Meets forecast

Falling petrol prices drag down inflation

Falling petrol prices helped drag down the consumer prices index (CPI) for November to 2.3% from 2.4% in the previous month, easing some of the pressure on UK families in the run-up to Christmas. The global oil price has slumped in recent months amid a production glut and amid concerns over fading demand as the world economy begins to slow, leading to cheaper petrol prices in the UK. Analysts believe that fading levels of inflation in recent months and uncertainty over Brexit are likely to discourage the Bank of England from raising interest rates. The slight fall in the inflation rate was in-line with City economists’ forecasts.

Worse than forecast

Sterling weakness fails to boost British trade

The drop in the value of the pound showed few signs of benefiting the economy in terms of trade in October, as Britain’s trade deficit – the gap between what the country imports and exports – increased by about £1bn from the previous month to stand at £3.3bn. While exports to EU countries recorded an increase, exports elsewhere dropped in a worrying sign for Brexiters aiming to boost Britain’s global trade to offset the impact from leaving the EU. With imports growing more than exports, some economists also speculated that some companies could be building up stocks now to safeguard against a no-deal Brexit.

Worse than forecast

Growing risk of no-deal Brexit hits business activity

Britain’s dominant services sector, accounting for almost four-fifths of the economy, came close to flatlining in November as fears over no-deal Brexit prompted companies to hit the pause button on new work and delay investment decisions. The monthly reading on the IHS Markit/Cips services index fell to 50.4 from 52.2 in October, slipping below City economists’ forecasts. Readings above 50 separate expansion from contraction. Taken together with other recent readings for the construction industry as well as the manufacturing sector, analysts said the economy was likely to have only expanded by about 0.1% in the fourth quarter.

Better than forecast

Pay growth hits highest levels in a decade

The lowest levels of unemployment since the mid-1970s finally appear to be handing British workers greater bargaining power to demand higher wages, after data showed that pay growth has hit the highest rate in a decade. The Office for National Statistics said that average weekly earnings, including bonuses, rose by 3.3% on the year during the three months to October, the biggest rise since July 2008 and comfortably beating forecasts by City economists. Unemployment increased by 20,000 to hit 1.38 million, following a difficult year for retailers with tens of thousands of high street workers made redundant. The overall jobless rate, however, held steady at 4.1%.

Better than forecast

Black Friday boosts consumer spending

Black Friday and Cyber Monday fuelled a sharp rise in consumer spending last month, according to official figures, but the data was a surprise to the City after a succession of doom-laden reports from retailers. The quantity of goods bought in shops and on the internet in November rose by 1.4% compared with October. The annual increase hit 3.6%. However, retailers including Asos and Bonmarché warned of tough trading conditions, and Sports Direct’s boss, Mike Ashley, described November as the worst month on record for retailers, with “unbelievably bad” sales.

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Better than forecast

Student loans give Hammond budget headache

A rise in tax receipts helped the public finances to improve in November, generating a bigger than expected fall for last month’s budget deficit – the shortfall between government spending and tax income. Borrowing was £7.2bn, about £900m less than in November 2017. Analysts warned that, should the current rate of improvements in the public finances continue, the government is likely to miss its deficit reduction target by about £4bn this financial year. Philip Hammond was also dealt a blow this month from the reclassification of student loans by the Office for National Statistics, which is likely to add as much as £12bn to the budget deficit for 2018-19 – further damaging the public finances. The change means that the windfall the chancellor received ahead of the autumn budget has entirely evaporated.

Worse than forecast

UK property market hits weakest level since 2012

Brexit uncertainty continued to take its toll on the property market in November amid growing fears over a no-deal scenario. The Royal Institution of Chartered Surveyors (Rics) said its monthly indicators of demand, supply and prices fell to multi-year lows last month. Prices fell steeply in London and across the south-east of England, while prices in the south-west, east Midlands and north-east remained broadly flat. There were price rises in Northern Ireland, Scotland, West Midlands, Wales, Yorkshire and Humber, and the north-west.

And another thing we’ve learned this month … household savings are stuck at the lowest levels on record

household savings

Families were struggling long before the Brexit vote, amid weak wage growth and benefit cuts, although official figures suggest that the referendum result has made matters worse. Inflation has risen due to the weakness in sterling amid uncertainty over Brexit, eroding real incomes. Data published last week showed households have now spent more than they received in income for eight quarters in a row, an unprecedented run. The household savings ratio – which estimates the money households have available to save as a percentage of disposable income – has dropped to a record low and remains at those levels, raising the prospect of a looming consumer debt crisis. Household consumption accounts for about 60% of GDP, meaning the continued spending drive has helped to drive economic growth, but there are growing questions over how sustainable this is likely to be.

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