A week of economic data for jobs, spending and the housing market has given the first firm evidence of the impact of the Brexit vote
There were warnings of recession before the EU referendum and more such gloomy forecasts have followed the vote to leave. But after a week of official economic data – including inflation and unemployment – gave a clearer impact of the immediate consequences of a leave vote, what do the numbers tell us?
Employment is up, shoppers kept spending and a weaker pound has boosted UK tourism. At the same time, inflation has picked up, house prices have wobbled and businesses say they are nervous about hiring and investing.
Here is what we know so far:
It is early days and monthly jobs data can be volatile, but fears that a Brexit vote would trigger widespread job losses were not realised in July. Official figures this week showed that the number of people claiming jobseeker’s allowance actually fell in the month following the referendum, the first such drop since February. The data also showed the employment rate was at a record high in the run-up to the vote, standing at 74.5% for the three months to June.
Business surveys have suggested some firms are reluctant to hire new workers since the vote and some reports have pointed to jobs being cut. But if the last recession is anything to go by, employers will be reluctant to part with skilled workers before they have a clearer idea of the business climate. Still, the Bank of England is predicting 250,000 job losses and believes the unemployment rate will rise from 4.9% now to 5.6% in two years’ time.
Economists are warning of steeper prices rises in the coming months as the full impact of the weaker pound following the Brexit vote is felt. The drop in the UK currency makes imports more expensive and retailers and manufacturers will probably pass on those higher costs to end consumers. The Bank of England predicts inflation will stand at 2.4% in two years’ time.
Hot on the heels of the solid jobs numbers this week, came news of a bounce in high street sales. Warm weather trumped Brexit fears, it seemed, as shoppers splashed out on sandals and summer tops.
Official figures showed retail sales volumes rose by 1.4% in July after a 0.9% drop in June. That was much stronger than the 0.2% increase predicted by economists in a Reuters poll but echoed industry reports of solid growth in consumer spending last month. There was also a boost to sales from tourists coming over to snap up luxury goods such as watches, made cheaper by the weak pound.
Some commentators warn that job cuts will start to bite later this year and spending will then fall. But for now, a relatively stable housing market, low inflation, low interest rates and low unemployment are keeping the tills ringing.
Analysts had predicted a drop in house prices following the Brexit vote. So far the early signs have been mixed but nothing points to dramatic falls.
Lender Halifax said house prices fell 1% in July. But on a less volatile three-month basis they continued to grow. Figures from its rival Nationwide showed prices rising 0.5% in July. But the building society warned that any impact from the vote might not be fully evident in July’s figures.
A survey of estate agents by the Royal Institution of Chartered Surveyors (RICS) suggested sales and demand from homebuyers dipped in July. But the group expected activity to settle in coming months and surveyors were feeling more positive about prices over coming months and the year ahead.
That is reassuring news for homeowners, says Kallum Pickering, senior UK economist at the bank Berenberg. “Tentatively, data on market expectations improved between June and July, suggesting that the Brexit bark might have been worse than the bite. There’s little evidence yet that points to a Lehman re-run in the UK housing market.”
The British public’s confidence in the economy recovered in August, according to a survey from data company Markit. The rebound in sentiment followed a slump in July as consumers fretted about the impact that leaving the EU would have on disposable incomes.
Expectations for finances over the next 12 months picked up to 49.8 on the Markit household finances index in August, from 47.1 in July. Anything below 50 signals deterioration, so households believe the outlook is stable, though they are still feeling cautious.
Other measures of consumer confidence also signalled a sharp initial drop in July. But data on consumer spending suggested people were still shopping, eating out and going to the cinema.
Stronger corporation tax receipts contributed to a £1bn surplus this July, according to the Office for National Statistics. But that was lower than a £1.2bn surplus in the same month last year and below economists forecasts for £1.6bn in a Reuters poll. Overall, as this chart shows, for the financial year so far the deficit is smaller than in the previous year.
July is typically a strong month for the public finances, with companies settling their corporation tax bills and self-employed people paying their income tax. Economists said it was not yet clear what impact the Brexit vote would have on the public finances over the coming months and years. The ONS itself cautioned: “Estimates for the latest period always contain a substantial forecast element and so any post-referendum impact may not become clear for some time.”
Sterling tumbled against the euro and the US dollar in the wake of the referendum result. That could make life easier for exporters, by making their goods cheaper to overseas buyers. However, it raises import costs.
For UK holidaymakers, the weaker pound has added to the cost of their summer break and they are finding that £1 buys less than a euro at some airports’ bureaux de change. In the week that sterling slipped to a new three-year low against the euro following the Brexit vote, researchers found that bureaux de change at Stansted and Luton airports were offering just 99 cents for every pound exchanged.
At one point on Tuesday, £1 was worth just €1.1476, its lowest level since August 2013. Sterling has since rallied a little, with £1 buying €1.1595 on Friday. That compares with €1.30 the day before the referendum in June, and €1.42 in August 2015.
The FTSE 100 share index hit a 14-month peak of 6,941.19 earlier this week and is not far off setting a new all-time high.
Action from the Bank of England to shore up the economy and its promise of more to come has helped. There has also been a boost from the weaker pound to those FTSE big hitters that earn a substantial amount of sales from overseas. The drop in sterling flatters the finances of companies that report profits in dollars and it helps exporters. It also makes the pound-denominated share index cheaper to buy into for foreign investors.
We won’t get the official take on post-referendum GDP growth until October. But early surveys of the construction, manufacturing and services sectors, point to the economy shrinking in the third quarter, say their compilers. There was a record fall in the all-sector purchasing managers’ index (PMI) in July. Markit’s chief economist Chris Williamson said that pointed to a 0.4% drop in GDP in the July-to-September quarter, a stark contrast to growth of 0.6% in the previous three months.
Technically, a recession is two consecutive quarters of contraction. For now, the Bank of England is cautiously optimistic that will be avoided after it stepped in with more electronic money creation and a cut in interest rates to a record low. Signs since then that consumer spending, the main driver of UK growth, is holding up will bolster those tentative hopes.