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

Sterling rocked by no-deal Brexit fears

The pound has had one of the most volatile months since the EU referendum two and a half years ago amid the twists and turns in Westminster over Brexit. The prospect of no-deal Brexit repeatedly sank sterling, only for speculation over a deal to trigger a rally hours later. The pound has fallen close to $1.30 against the dollar, while hitting a highof almost $1.34. Sterling still remains as much as 12% below the level recorded before the EU referendum in June 2016.

FTSE 100 rises as global markets recover

The FTSE 100 has recorded modest gains over the past month, mirroring financial markets around the world, as investors bet that a slowdown in the world economy might not be as bad as feared. Markets have, however, begun to reverse those gains over recent days after figures showed that eurozone factory output fell the most since 2012. Over the month, the FTSE 100 has risen by about 100 points and currently stands at about 7,200.

Worse than forecast

Inflation rate begins to rise

Inflation was stronger than expected last month, as the consumer prices index rose to 1.9%, up from 1.8% in January, fuelled by the rising price of food, tobacco and alcohol. Economists said food prices were likely to rise further over the coming months as a result of higher import prices, which rose by 5.5% in January. The energy regulator, Ofgem, will also lift its energy price cap by 10% in April, boosting the headline rate of inflation further. However, the inflation rate remains below the 2% target set for the Bank of England by the government.

Worse than forecast

Global slowdown holds back UK trade

Britain’s trade deficit widened in January by more than expected as imports grew faster than exports – a possible sign of a slowdown in the global economy, which could be sapping demand for goods and services abroad. Economists also said Britain raised its imports, possibly reflecting greater levels of stockpiling by factories rushing to bring in components to the country ahead of Brexit. The trade in goods deficit increased to £13.1bn, compared with City economists’ expectations for a shortfall of £12.2bn.

Better than forecast

Business activity rebounds despite uncertainty

Business activity levels in the three biggest sectors of the British economy – services, manufacturing and construction – recovered slightly in February, despite warnings that growth remained close to stalling point as mounting Brexit uncertainty took its toll. The IHS Markit/Cips services purchasing managers’ index (PMI) registered 51.3 in February, up from a two-and-a-half-year low of 50.1 a month earlier, beating forecasts made by City economists for a reading of 49.9. The expansion was, however, only just above the 50 mark that separates growth from contraction, while economists said the services sector was heading for its weakest quarter since 2012.

Better than forecast

Unemployment falls to lowest level since 1975

Unemployment unexpectedly dropped to the lowest level in 44 years as employers ramped up hiring ahead of Brexit despite mounting fears over a no-deal withdrawal. The jobless rate sank to 3.9% in the three months to January from 4% a month ago – the lowest point since the start of 1975. Companies increased their hiring activity to add another 222,000 people to the UK workforce, taking the overall number in work to a record high of 32.7 million. Annual growth in average pay remained at 3.4%, the fastest rate in a decade. Despite the apparent good news, economists said the jump in employment probably came as Brexit uncertainty encouraged firms to hire workers to meet demand rather than invest in equipment as it would be easier and cheaper to fire staff in a downturn.

Better than forecast

Shoppers shrug off Brexit fears to raise spending

Consumers appear to have shrugged off mounting fears over Brexit by raising their spending in February, as unseasonably warm weather tempted shoppers to the high street. Retail sales volumes rose by 0.4% last month compared with January, beating City expectations for a drop of the same amount. Some analysts said that shoppers may have been stockpiling goods ahead of Brexit, though the figures showed that supermarket sales fell, which would appear to contradict this. Food stores recorded the biggest drop in monthly sales since December 2016, as January sales promotions ended and retailers went “back to normal” on pricing, to the detriment of sales volumes.

Better than forecast

Record employment boosts income tax revenues

The chancellor, Philip Hammond, was handed positive news from the public finances after delivering the spring statement, as the latest figures showed the budget deficit for February was down by £1bn from the same month a year ago to £200m. Higher levels of income tax from record numbers of people in work across Britain helped narrow the gap between government spending and revenue. Public borrowing in the first 11 months of the year was £23.1bn, down £18bn on the same period a year ago. The chancellor had used the spring statement to say the recent stronger performance of the public finances would give him as much as £26.6bn to either spend on ending austerity or to fight an economic downturn in the event of no-deal Brexit.

Worse than forecast

House price growth weakens as Brexit nears

House price growth across the country slowed over the past month to the lowest rate in almost eight years, amid fears that no-deal Brexit would cause a crash in property values. The Royal Institution of Chartered Surveyors’ monthly house price balance – measuring the difference between the number of estate agents and property surveyors anticipating increases and those expecting decreases – dropped to -28% in February, the lowest level since May 2011. Concerns over Brexit have led to a slump in transactions and house prices in London have fallen sharply.

And another thing we’ve learned this month … The eurozone economy is weakening – and that’s bad for Britain

Eurozone economy

Economic growth in the eurozone appears to have remained weak in the first quarter of 2019 after a disappointing conclusion to last year. The latest snapshot showed that manufacturing output contracted the most since December 2012 – a period when the eurozone was gripped by the sovereign debt crisis. Economists warned that the weak readings on growth suggest the world economy was entering a softer patch, particularly in China during the US-China trade dispute.

Brexiters might argue the bad news from the European economy is reason enough for Britain to distance itself from the EU as much as possible. Eurozone GDP is on course to expand by just 0.2% for the first quarter, marginally weaker than the UK. Italy is suffering from its fifth recession in two decades, while Germany only just avoided recession at the end of last year, with growth close to zero. However, the EU accounts for almost half of UK exports, while there has been little adjustment to non-EU trade since the Brexit vote. Bad news for the EU is still bad news for Britain.

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