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You can find the current article at its original source at https://www.theguardian.com/business/2017/oct/24/how-has-the-brexit-vote-affected-the-uk-economy-october-verdict
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| Version 0 | Version 1 |
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| How has Brexit vote affected UK economy? October verdict | |
| (35 minutes later) | |
| Pound falters despite rate hike talk | Pound falters despite rate hike talk |
| Over the past month, sterling has faltered amid weak economic data and slow progress in the Brexit negotiations, despite expectations for an interest rate rise from the Bank of England, which should be pushing the currency higher. The pound has fallen back below the level it was at before the central bank suggested mid-September that the cost of borrowing may be increased in the “coming months”. Sterling remains more than 10% down against the dollar since the EU referendum in June 2016. | |
| FTSE 100 rallies on weak sterling | FTSE 100 rallies on weak sterling |
| The pound’s weakness is the FTSE 100’s strength. That’s because companies in the leading index of UK shares are typically global firms which make significant sums of money in foreign currencies, so a weak pound increases their bottom line and thus their stock prices. When sterling rises, the opposite happens. The FTSE 100 has risen more than 3% over the past month, hitting its record high on 12 October amid “deadlock” in the Brexit talks, which had triggered a sell off in the pound. | |
| The FTSE 250 list, which has more companies rooted in the UK economy, has also risen about 3% over the past month. | The FTSE 250 list, which has more companies rooted in the UK economy, has also risen about 3% over the past month. |
| Inflation surge hurts consumers, yet may help pensioners | |
| The cost of living increased at its fastest annual rate since 2012 last month, as the consumer price index (CPI) edged up to 3% in September from 2.9% a month ago. Mark Carney, the governor of the Bank of England, said the sole reason behind the rate of inflation rising to this point was the depreciation of the pound after the vote to leave the EU. While the jump in inflation will damage the spending power of consumers, the September figures will prove a boon for pensioners as they are used to set the increase in pension payments for next year. While CPI at 3% was in line with City economists’ forecasts, it is also expected to increase further over the coming months, which could push rate setters at the Bank to raise the cost of borrowing in November. | |
| Worse than forecast | Worse than forecast |
| UK’s trade in goods deficit hits record high | UK’s trade in goods deficit hits record high |
| Hopes that the weak pound since the referendum would increase exports, giving an economic uplift to offset a downturn in consumer spending, took yet another knock with the latest figures. The trade deficit in goods hit a record high, as the gap between what the UK bought and sold widened in August to £14.2bn. That was much bigger than expected, and up from £12.8bn in July. Imports surged by 4.2% during the month, while exports only rose by 0.7%. The overall trade deficit, including services, widened to £5.6bn in August from £4.2bn in July. | |
| Worse than forecast | Worse than forecast |
| Key industries signal weak economic growth | Key industries signal weak economic growth |
| Key barometers of companies’ sentiments about business activity pointed towards weak economic growth in September, with particularly bad news from the building and construction industry as it slipped into contraction. The UK’s biggest sector, services, was the only area to record any improvement from August. The Markit/CIPS purchasing mangers’ index (PMI) for the industry came in at 53.6 in September, beating analysts expectations and rising from 53.2 in August. The construction industry fell to 48.1 from August’s reading of 51.1, its lowest level since July 2016 and below City estimates. Manufacturers reported higher prices for goods used in the production process, eroding the benefit from the weakness in the pound when selling abroad. The gauge of factory output came in at 55.9, below a forecast for 56.4 and down from a revised figure of 56.7 in August. The PMI measures, where anything above 50 indicates expansion, are tracked for early clues on official GDP figures. | Key barometers of companies’ sentiments about business activity pointed towards weak economic growth in September, with particularly bad news from the building and construction industry as it slipped into contraction. The UK’s biggest sector, services, was the only area to record any improvement from August. The Markit/CIPS purchasing mangers’ index (PMI) for the industry came in at 53.6 in September, beating analysts expectations and rising from 53.2 in August. The construction industry fell to 48.1 from August’s reading of 51.1, its lowest level since July 2016 and below City estimates. Manufacturers reported higher prices for goods used in the production process, eroding the benefit from the weakness in the pound when selling abroad. The gauge of factory output came in at 55.9, below a forecast for 56.4 and down from a revised figure of 56.7 in August. The PMI measures, where anything above 50 indicates expansion, are tracked for early clues on official GDP figures. |
| Better than forecast | Better than forecast |
| Deficit bolsters Hammond before budget | |
| Britain borrowed just £5.9bn to balance the books last month, the smallest deficit for any September in the last 10 years. That beat City forecasts for the annual gap between government spending and tax receipts of £6.5bn, and was down 11% on the same month a year ago. Higher than-expected tax receipts helped swell the coffers of the exchequer, handing Philip Hammond a fillip before next month’s autumn budget despite recent Brexit turmoil and a sharp slowdown in GDP growth. | |
| Better than forecast | Better than forecast |
| Wages lag inflation despite low unemployment | Wages lag inflation despite low unemployment |
| Company bosses blamed Brexit uncertainty as a factor behind sluggish growth in wages, as low levels of unemployment in the British economy failed to increase the bargaining power of workers to secure higher wages. Average pay excluding bonuses increased by 2.1% in the three months to August, down from 2.2% in the three months to July after a revision to the earlier figures, according to the latest figures from the Office for National Statistics. Although lacklustre, and the sixth-straight month of negative earnings, that beat City economists’ forecasts for growth of 2%. The jobless rate remained steady at 4.3%, inline with estimates, although there were fewer people taking on work than in previous periods. | |
| Worse than forecast | Worse than forecast |
| Consumer spending slows amid income squeeze | Consumer spending slows amid income squeeze |
| High street sales slumped in September, pushing the British retail sector to its lowest growth rate in the three months to September since 2013. Month-on-month sales declined 0.8%, against expectations for a 0.1% fall, with supermarkets and food retailers, department stores and petrol stations hardest hit. Year-on-year sales volumes were up just 1.5% in the past three months, compared with about 4% annual growth between 2014 and 2016. The figures are a troubling indicator for the strength of the economy, with consumer spending a key component. Analysts linked weak sales with high inflation and falling real wages. | High street sales slumped in September, pushing the British retail sector to its lowest growth rate in the three months to September since 2013. Month-on-month sales declined 0.8%, against expectations for a 0.1% fall, with supermarkets and food retailers, department stores and petrol stations hardest hit. Year-on-year sales volumes were up just 1.5% in the past three months, compared with about 4% annual growth between 2014 and 2016. The figures are a troubling indicator for the strength of the economy, with consumer spending a key component. Analysts linked weak sales with high inflation and falling real wages. |
| Better than forecast | Better than forecast |
| House price growth remains subdued | House price growth remains subdued |
| The latest monthly snapshot from the Royal Institution of Chartered Surveyors (RICS) paints a picture of a subdued housing market in September. Sales and inquiries from potential purchasers both fell “noticeably”, while there was little evidence that the market will pick up soon. London is bearing the brunt of falling prices, while there were also signs of cooling in the south east. A net balance of 6% of surveyors saw house prices increase rather than decrease, the same figure as recorded in August, although above City estimates for the gauge to fall to 4%. | |
| And another thing we’ve learned this month ... weak productivity will hit the public finances | And another thing we’ve learned this month ... weak productivity will hit the public finances |
| Expectations for the productivity of UK workers will need to be “significantly” lowered, according to the government’s independent economic forecaster. The Office for Budget Responsibility said that, after a decade of stagnant growth since the financial crisis, the average rate of productivity growth of 0.2% over the past five years was a better guide for 2017 than its forecast of 1.6% in March. Treasury officials believe the downgrade will wipe out about two-thirds of the government’s £26bn budget surplus from 2017 to 2021, which had been seen as a war chest for a potential slowdown after a disorderly and harmful EU exit. Economists have had to repeatedly downgrade their forecasts for productivity growth as the official statistics have showed it stubbornly failing to improve. | Expectations for the productivity of UK workers will need to be “significantly” lowered, according to the government’s independent economic forecaster. The Office for Budget Responsibility said that, after a decade of stagnant growth since the financial crisis, the average rate of productivity growth of 0.2% over the past five years was a better guide for 2017 than its forecast of 1.6% in March. Treasury officials believe the downgrade will wipe out about two-thirds of the government’s £26bn budget surplus from 2017 to 2021, which had been seen as a war chest for a potential slowdown after a disorderly and harmful EU exit. Economists have had to repeatedly downgrade their forecasts for productivity growth as the official statistics have showed it stubbornly failing to improve. |