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How has Brexit vote affected UK economy? November verdict | Business


Sterling rebounds as no-deal risk declines

The pound stabilised this month near $1.30 after a recovery in October from the summer woes that pushed sterling down below $1.20 and almost to parity against the euro. To the relief of holidaymakers going to the continent, the pound now stands at €1.18. The recovery was connected with the slowly evaporating threat of leaving the EU without a deal before the 31 October deadline. Support for sterling also came from poor economic figures from the eurozone, which indicated the currency bloc was entering a period of stagnation. A slowdown in the US also helped the pound’s rebound. This month currency traders have remained on guard against Brexit developments, but with the election in full swing, they must wait until its conclusion before the UK’s relationship with the EU becomes a little clearer.

Share prices lose ground against Europe and the US

Shares in London hit a 12-month peak in July, before entering a jittery period that continued last month. Concerns over Britain’s future trading arrangements was the main cause, but figures showing the UK economy slowing down also dragged on share values. The index of Britain’s top 100 companies dropped as low as 7,200 over the last month and only rarely pushed above 7,400 to fall well short of July’s 7,700 high point. Stock markets across Europe and the US have proved to be much more buoyant, shrugging off the gloom to register strong gains. The S&P 500 in New York has risen almost 7% since August. France is best performing major economy in Europe this year and since August has seen its stock market, the CAC 40, rise by more than 10%. Even the struggling German stock market, the Dax, ahead by 13% rise over the same period.

Better than forecast

Inflation drops back after heavy discounting

Inflation dropped to 1.5% in October after a slide in fuel and energy prices. Heavy discounting at furniture stores also played a part in average prices rising more slowly along with price cuts across the recreation and culture sectors, according to the Office for National Statistics. Core inflation, which strips out volatile fuel costs, stayed at 1.7%, only marginally below the Bank of England’s target of 2%. Bank of England officials, who meet eight times a year to set interest rates, could cut the cost of borrowing in the new year if the decline continues, but few City analysts believe a decision is imminent. The higher level of core inflation was the result of increases in clothing and footwear that pulled down inflation from its recent peak of 3.1% in 2017. Most forecasters predict inflation will stay steady for the next few months, but could rise next year after a Brexit deal likely to send the value of the pound down and the cost of imports up.

Worse than forecast

Trade boosted by rise in exports

Britain’s trade position improved in September after a 5.2% rise in exports that narrowed the trade gap, but not by as much as City economists had hoped. Much of the increase came from the services sector after increases in the export of business services, intellectual property, financial services and travel consultancy work. A £4.3bn increase in goods exports to £89.7bn was driven largely by machinery and transport equipment and chemicals. But the ONS said it was concerned about its own data and how it showed a surge in exports when other indicators pointed in the opposite direction. The ONS also highlighted how the annual trend had worsened. Over the last 12 months, the total trade deficit widened by almost £19bn to £51.6bn. Poorer exports would also fit with the trends in global trade, which has declined since it became clear that the US president, Donald Trump, was serious about launching a full-blown economic war with China. The OECD, the Paris-based club for the wealthiest 36 nations, said earlier this month that global growth was likely to slow to 2.9% this year before stabilising in 2020 and rising back to 3% in 2021.

Worse than forecast

Business activity has sharpest drop since the referendum

A long slide into recession seemed inevitable after figures from the IHS Markit/CIPS purchasing managers’ index showed all areas of Britain’s private sector entering a period of contraction. A flash publication of the index covering about 85% of business activity in manufacturing and the services industry showed that in November, UK companies had the sharpest drop in activity since the EU referendum. Most businesses blamed the situation on faltering confidence among both domestic and overseas customers, who are worn out by continuing political indecision. Not since July 2016 and the weeks after the EU referendum have businesses cut back on new orders and production to such an extent. Analysts said the onset of a general election added to Brexit-related uncertainty and helped to erode business confidence.

Worse than forecast

Employment levels fall at fastest rate for four years

Employment in the UK fell at its fastest rate in four years in the three months to September and pay growth slid backwards, leading to speculation that Brexit uncertainty was taking its toll on the jobs market. The ONS said employment had fallen by 58,000 during the third quarter of 2019 – the biggest fall since May 2015. A 93,000 drop in female employment appeared to indicate the trouble faced by high street stores, which employ large numbers of women and have closed at an alarming rate over the last year. The number of men in employment increased by 35,000. Meanwhile, Brexit uncertainty was also evident in the supply of labour, with non-EU nationals accounting for almost all the net growth in migrant employment over the past year. Pay growth fell to 3.6% from 4% in July.

Worse than forecast

Retail spending weak before Black Friday

A rash of price cutting in October on the high street and by online retailers failed to cheer consumers who surprised City analysts with a 0.1% drop purchases. City analysts had expected heavy discounting by retailers to drive up sales. Instead the October figure for retail volumes represented the weakest monthly figure since April last year. Some analysts speculated that shoppers were reluctant to spend before the proposed 31 October Brexit deadline. Others believed the prospect discount shopping on Black Friday and Cyber Monday later this month, and Christmas had deterred shoppers from spending vital cash in October. There was also speculation that recent declines in employment and wages growth had deterred consumers from spending on big-ticket items such as furniture and cars. Sales fell in all main retail sectors apart from food stores. Once petrol and diesel sales were stripped out the drop was even more severe at 0.3%. Department stores fared a little better than over the previous year, but the rise in sales was modest compared with the battering these large outlets have faced as shoppers desert the high street in favour.

Worse than forecast

Public finances hit by Brexit spending

Extra government spending since last year on Brexit preparations, the health service and a welter of new posts in Whitehall has dented the public purse and pushed ministers’ deficit reduction plans off course. Figures covering last month showed that government borrowing rose to its highest October level in five years as the shortfall hit £11.2bn – up £2.3bn on a year earlier. The ONS said borrowing in the first seven months of the 2019-20 financial year was £46.3bn, an increase of £4.3bn on the same period in 2018-19. Not only was spending up, but tax receipts were almost flat at just 0.4% higher from the same month last year, with the weakness spread across VAT and taxes on income and companies. City analysts said the annual shortfall was only going to get larger once the next government has begun to include its election promises in the calculation. Before the election, the chancellor, Sajid Javid, had already announced the budget deficit in 2020-21 would be lifted appreciably by a £13.8bn increase to public spending (4.1% in real terms and the fastest increase in 15 years).

Better than forecast

House prices on hold while buyers wait and see

House prices have remained steady in most parts of the country over the last year, despite Brexit uncertainty. But while the asking price of a home has moved sideways in many areas, the number of properties coming on to the market has fallen sharply. Rightmove reported that new listings dropped by nearly 15% this month, in what was the largest year-on-year slump in any month since August 2009. Across Britain, the average asking price is £302,808. The recent worries over Brexit also hit the average price tag, which fell by £3,900 in November – the equivalent of a 1% decline – on the previous month. Agents said there was an element of “wait and see” among would-be buyers, partly in response to the looming Christmas break, but also the prospect of a new government under Boris Johnson cutting level of stamp duty for first time buyers.

And another thing we’ve learned this month … the services sector is keeping the economy afloat

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The monthly snapshot of economic growth made grim ready in September. The ONS said GDP declined by 0.1% after a 0.2% fall in August. However, a bumper July kept the three-month figure to September in positive territory at plus 0.3%, helping to offset a 0.2% fall in the three months to the end of June and give a six-month growth rate of 0.1%. The manufacturing and construction sectors were the main areas of weakness as Brexit uncertainty pushed firms to cut back production and an increasing number to go bankrupt. Construction firms topped the table of corporate insolvencies, but manufacturers were not far behind. The services sector, which accounts for three quarters of economic activity, kept the economy afloat, though the main boost came from the higher wages they paid to workers rather than higher order books.


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