Brexit

How has economy fared since Brexit vote?

  • 17 January 2017
  • From the section Brexit
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European Union (L) and British Union Jack flags hang at a meeting for British citizens living in Germany to discuss the implications of Great Britain leaving the European Union Image copyright Getty Images

Before the EU referendum, debate raged about what the impact would be of a Leave vote. Now the country has backed Brexit, have the predictions - including the government's warnings about an economic shock - come to pass?


Economy

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Many economists prior to the referendum had been predicting an immediate and significant impact on the UK economy and consumer confidence should the country vote to leave the EU. But so far these predictions have not come to pass.

Latest figures show the economy grew by 0.6% between July and September, faster than previous estimates.

Separate figures from the ONS showed the UK's current account deficit widened towards record levels in the third quarter, with few signs that the fall in the pound in the wake of the Brexit vote had helped to boost exports.

GfK's consumer confidence index - which had returned to pre-referendum levels in September - went up in December by one point but was still down compared with the start of the year, while its Major Purchase Index was five points higher than a year earlier.

As for the Christmas shoppers, High Street sales were 0.1% lower in December than they were the previous year, according to BDO's High Street Sales Tracker, but online sales were 19% higher than a year earlier.

Inflation has gone up from 0.5% in June, with the Consumer Prices Index (CPI) at 1.2% in November, its highest rate since October 2014.

In its report for the Autumn Statement, the Office for Budget Responsibility upgraded its growth forecast to 2.1% in 2016, from 2.0%, but downgraded to 1.4% in 2017, from 2.2%.

Government finances were forecast to be £122bn worse off in the period until 2021 than had been forecast in March's Budget.

The Bank of England has raised its forecast for economic growth next year to 1.4% from 0.8%, but cut expectations for 2018 to 1.5% from 1.8%.


Timing of the official start of Brexit process

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Prime Minister Theresa May - who replaced David Cameron after he quit in the aftermath of the referendum - announced at the start of October her deadline for beginning the formal Brexit process.

She said that Article 50 of the Lisbon Treaty, which triggers two years of formal negotiations, will be invoked before the end of March 2017. In practice this means the UK will be out of the EU by the summer of 2019.

A legal challenge - to force the government to give MPs a say before the Article 50 process starts - has been heard in the Supreme Court, with the decision expected in January.

The government has agreed to publish some details of its Brexit "plan" before Article 50, but it is not clear how much detail will be released.


Currency

The pound fell dramatically after the Brexit vote at the end of June.

It then declined to a three-year low against the euro following Theresa May's announcement that the UK would begin formal Brexit negotiations by the end of March taking its fall from a pre-referendum rate of over 1.30 euros to a low of 1.09 euros in October.

It fell again on 9 January when commentators interpreted Mrs May as having suggested the UK would leave the single market.

By 12 January it had regained some ground back to a pound being worth 1.14 euros.

The same day the pound was worth $1.21 - compared with $1.47 pre-referendum.

The fall in the pound helps exporters but it makes foreign holidays more expensive for British tourists and it has also increased import costs for manufacturers (see Trade below).

The falling pound triggered a stand-off between Tesco and its biggest supplier, Unilever, which wanted to increase prices in the UK to compensate for drop in value. This led Tesco to temporarily stop selling some of his most famous brands - including Marmite - to online shoppers.

However, one beneficiary of cheaper sterling has been the UK's own tourism sector, as a weaker pound makes Britain a cheaper destination for overseas tourists. The travel analytics firm ForwardKeys says flight bookings to the UK rose 7.1% after the vote.

Caissa Touristic, a tour operator specialising in Chinese travel to Europe, says it saw a 20% increase in enquiries and bookings for the UK this summer compared with the same period last year, while Irish no-frills airline Ryanair says it has seen a rise in overseas visitors travelling to London, Manchester, Liverpool, Leeds and Scotland.

Meanwhile, stock markets have been bullish since the Brexit vote. The FTSE 100 closed at a record high at the end of 2016, up 14.4% during the year.

The FTSE 250, which is seen as a better yardstick of the UK economy because it has more domestic-focused companies, ended the year 3.7% ahead.


Interest rates

Since the vote the Bank of England has taken a number of steps to boost the UK economy. It cut interest rates from 0.5% to 0.25% in August - the first reduction in the cost of borrowing since 2009 and taking UK rates to a new record low.

The Bank left its main interest rate at 0.25% in December.

After the referendum the Bank also announced a huge extension of its quantitative easing programme by an extra £70bn, and a £100bn scheme to force banks to pass on the low interest rate to households and businesses.

One effect of the interest rate cut is that it has exacerbated the growing pension funds deficit because of falling bond yields. As yields fall it reduces the incomes pension funds get from their investments.


Negotiations

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Mrs May has met EU leaders including Germany's Angela Merkel and French president Francois Hollande, but formal negotiations on the UK's departure from, and its future relationship with, the EU have yet to start.

EU leaders have said Article 50 of the Lisbon Treaty must be triggered before negotiations can begin.

The government has not yet set out in detail what it wants from the talks, with reported differences between key figures on the balance between free trade and immigration curbs.

Mrs May has faced repeated calls to set out what she wants Brexit to look like, but has refused, saying there will be "no running commentary".

Although David Davis has been appointed Secretary of State for Leaving the European Union, it is as yet unclear whether he will be leading the UK's negotiating team on a day-to-day basis.

The UK's top official in Brussels, Sir Ivan Rogers, resigned in early January - urging civil servants to continue to "challenge ill-founded arguments and muddled thinking" about the process.

In his resignation letter, the UK's permanent representative to the EU warned that there was a shortage of "serious multilateral negotiating experience" in the civil service and it was essential his successor, later named as Sir Tim Barrow, was "centrally involved in the negotiations if the UK is to achieve the best possible outcomes".

Meanwhile, Former French Foreign Minister Michel Barnier has been appointed by the European Commission to lead the negotiations.


Hate crime

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According to Home Office figures, racist or religious abuse incidents recorded by police in England and Wales jumped 41% in the month after the UK voted to quit the EU.

There were 3,886 such crimes logged in July 2015, rising to 5,468 in July this year, it said.

The sharp increase declined in August but has "remained at a higher level than prior to the EU referendum".

The number of hate crimes overall in the year 2015-16 were up 19% on the previous year.

Police have also said reported hate crime rose by 57% in the four days after the referendum.

It's impossible to tell to what extent the spike was about a rise in reporting and to what extent it was about a rise in actual incidents. What we do know is that most hate crimes typically go unreported. The government has announced a plan to tackle hate crime in England and Wales and police handling of such incidents will be reviewed.

As the latest figures were published on 13 October, the National Police Chiefs' Council said the number of hate crime incidents had fallen from the post-referendum spike.


House prices

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House prices in the three months to December were 6.5% higher than in the same three months of 2015, Halifax reported.

The Nationwide said that house prices increased by 4.5% in 2016, the same rate as 2015.

The Council of Mortgage Lenders said gross lending in the 12 months to November rose by 3%.

In September, the Royal Institution of Chartered Surveyors said the housing market had "settled down" since Brexit.


Migration

Most of the period covered by the latest migration figures was before the EU referendum, but they also include one week after the poll.

In the year to June, net migration stayed near record levels, standing at 335,000, the Office for National Statistics said.

There was also a record number of EU citizens coming to live in Britain with the figure standing at 284,000.


Trade

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In the month of the referendum, the UK trade deficit in goods and services widened to £5.1bn after imports hit a new high.

But latest figures show it narrowed to £2bn in October as exports rose by £2bn, lifted by machinery and transport orders, while imports decreased by £1.8bn, the Office for National Statistics said.

The ONS said there was "only limited evidence so far" that the fall in the pound's value had led to a "marked increase in UK exports".

The UK has long been running a trade deficit, meaning that overall it imports more than it exports.

The chart below shows that the UK does sell more services abroad than are imported - but this is not enough to counter the bigger deficit in the value of the goods sold abroad, compared with the value of the goods imported.


Construction

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The UK's construction industry seems to have recovered in August from a downturn that started just before June's Brexit vote. The latest Markit/CIPS UK Construction Purchasing Managers' Index rose to 56.1 from 45.9 in July, although the figure is still below the 50 mark that divides expansion from contraction.

The uncertainty over what happens next acted as a brake on the construction sector during August, especially in terms of house building, the survey suggests. However, a number of firms say that sales have held up better than had been expected.

Significantly these figures also indicate the sector has seen a further steep rise in the cost of raw materials, with input costs now rising at their fastest pace since July 2011.


Jobs

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Although UK unemployment fell slightly to 1.62 million in the three months to October, economists warned there were signs the labour market had started to "cool off" since the Brexit vote.

In total, there were 31.76 million people in work, which was "slightly down on the record set recently", said ONS senior statistician David Freeman.

"The labour market appears to have flattened off in recent months," he said.

Nissan confirmed it would build both the new Qashqai and the X-Trail SUV at its Sunderland plant thanks to government "support and assurances", an announcement Theresa May described as a "vote of confidence".

The Japanese company's commitment to Britain's biggest car plant had been in doubt following the EU referendum.

One of Britain's biggest banks, Lloyds, has accelerated its job cuts, axing a further 3,000 posts - although it said it had made this decision before the referendum.

Elsewhere Japan's Softbank said it was buying the UK microchip-maker ARM Holdings for £24bn, and would double the number of staff in five years, pharmaceuticals firm GlaxoSmithKline is investing £275m in the UK, while McDonald's is creating 5,000 new jobs.

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