How has the Brexit vote affected the economy? April verdict

Sterling retreats after Carney comments

Sterling markets

Euro v £Dollar v £

Jun 2016Jun 20171.

Source: Thomson Reuters

The pound soared earlier in the month amid speculation over an interest rate rise from the Bank of England in May, but sterling has staged a sharp retreat since Mark Carney hinted of a delay following recent weak economic data. Sterling had climbed back above $1.43 for the first time since January after the ONS declared the return of real wage growth – seen as a key prompt for higher interest rates. However, the governor pointed to bad economic news from heavy snowfall and weak retail sales, sending the pound back below $1.40. Sterling remains about 6% less valuable versus the dollar than before the 2016 referendum.

FTSE 100 rises as pound weakens

FTSE250 index

Jun 2016Jun 201715,00016,00017,00018,00019,00020,000

Source: Thomson Reuters

FTSE100 index

Jun 2016Jun 20176,0006,2006,4006,6006,8007,0007,2007,4007,600

Source: Thomson Reuters

What’s bad for the pound is good for the FTSE 100 because many of the companies in the index make substantial profits in dollars and export around the globe. The weak pound, which is a boon for these firms, has helped the index of bluechip British shares rise by almost 400 points over the past month. Fears over a potential trade war between China and the US rattled markets earlier in the month but a softer tone from Donald Trump and the Chinese president, Xi Jinping, has placated investors.

Better than expected

UK inflation falls to lowest level for a year

Consumer prices index, % change

Jun 2016Jun 20170123

Source: ONS

Inflation unexpectedly fell in March, the clearest indication yet of the EU referendum result’s fading effects on the cost of living in Britain. Growth in prices accelerated sharply last year, triggered by the weak pound after the Brexit vote pushed up the cost of imports. That has now begun to fade, with inflation sliding to 2.5% last month from 2.7% a month earlier. The outcome was lower than forecast, despite speculation that the reading could have been influenced by one-off factors – such as the lack of a budget in March, which usually drives up the cost of fuel and tobacco in the spring.

Better than expected

Trade deficit shrinks amid global fears

Trade balance, £bn, goods and services, seasonally adjusted

Jun 2016Jun 2017-6-5-4-3-2-1

Source: ONS

The spectre of a damaging global trade war triggered by Donald Trump could dent the ambition of leading Brexiters to strike free trade deals with the rest of the world after the UK leaves the EU. For now, despite the warning signs, there was better news last month in the narrowing UK trade deficit. The trade deficit highlights the difference between what Britain sells abroad and what it imports. In February, this narrowed to £10.2bn, down from £12.2bn in January.

Worse than expected

‘Beast from the east’ causes drop in activity

Activity levels

All sector PMI, output index. Values above 50 indicate growth, below 50, contraction

Jun 2016Jun 20174850525456

Source: IHS Markit

There were signs that the freezing weather and heavy snow early last month brought the UK economy to a standstill, raising questions over whether the Bank of England would raise interest rates in May. Barometers of business activity in the construction and services sectors fell sharply, with the latter recording the worst month for activity since the Brexit vote. The IHS Markit/CIPS all sector purchasing managers’ index fell to 52.1, down from 54.2 on a gauge where a reading of 50 splits the difference between expansion and contraction. As a result, economists are forecasting a fall in economic growth for the first quarter of 2018 by about half from the final months of last year.

Better than expected

Unemployment falls, but wage growth stalls


Seasonally adjusted rate for age 16 and over, three months ending in month shown, %

Jun 2016Jun 2017012345

Source: ONS


Average earnings annual growth, three months ending in month shown, %

Jun 2016Jun 20170.

Source: ONS

The big news was the return of real wage growth after a year of negative earnings after inflation for British workers, when the ONS said average pay was once again outstripping price growth. Unemployment also unexpectedly fell to the lowest level since 1975, sliding to 4.2% in the three months to February from 4.3% in the three months to January. However, the return of real wage growth was down to falling inflation, rather than rising pay. Against forecasts for an increase of 3%, average weekly earnings including bonuses rose by 2.8%, at the same level as January.

Worse than expected

Retail sales feel unseasonal chill

Retail sales

Month on month change, %, seasonally adjusted

Jun 2016Jun 2017-1012

Source: ONS

March’s bad weather may seem like a distant memory, but the scars still show on retailers’ profit and loss accounts. Freezing temperatures sent shoppers scuttling from the nation’s high streets and clobbered sales. Volume of sales fell 1.2% in March from February, with petrol sales especially hard hit, down 7.4%, said the Office for National Statistics. Sales were down 0.5% between January and March compared with the previous quarter, the worst performance in a year.

Better than expected

Government borrowing at lowest level since 2007

Government borrowing



Philip Hammond received good news from the public finances last month, with figures showing the UK budget deficit had narrowed to the lowest annual level since the financial crisis. According to the ONS, public sector net borrowing, excluding state-owned banks, fell by £3.5bn to £42.6bn in the last financial year – making 2017-18 the best year for the budget deficit since the year ending March 2007. The shortfall between how much the government spends and what it receives from taxes was £2.6bn lower than forecast by the Office for Budget Responsibility. Meanwhile, the chancellor had hinted during the spring statement he could raise spending in the autumn budget should the public finances remain on track.

Worse than expected

House price growth slows amid uncertainty

RICS house price indicator

Proportion of respondents reporting a rise in prices minus those reporting a fall, %

Jun 2016Jun 20170102030

Source: RICS

Brexit uncertainty is weighing heavily on the UK property market, where house price growth has slowed across the country and in reverse in London. The latest snapshot from the Royal Institution of Chartered Surveyors (Rics) showed demand from buyers fell for the 12th consecutive month in March, coupled with the seventh month in a row for fewer new instructions from sellers. Meanwhile, official figures from the ONS showed the first annual fall for house prices in London since the depths of the last recession in 2009.

And another thing we’ve learned this month … Britain needs more migrants to offset an ageing population

Labour force participation rates

All European advanced economies

No migration

Low migration

Baseline migration

High migration

United Nations baseline














Source: Eurostat, UN, IMF

Net migration has fallen since the Brexit vote as EU workers choose to return home or decide against coming to Britain. But while that might cheer some Brexit voters, company bosses are growing increasingly concerned about potential staff shortages, which could act as a drag on the economy. The dangers were underlined by new analysis from the International Monetary Fund this month, warning that major economies face being overwhelmed by ageing populations. Calling on the world’s biggest nations to throw open their doors in response, the IMF said adults of working age would need to support twice the number of elderly people as at present within the next few decades. That would put immense pressure on welfare systems and wipe out as much as 3% of potential economic output by 2050.