Pound rises amid ‘sufficient’ Brexit progress
Britain was deemed to have made “sufficient progress” in the Brexit talks with the European Union earlier this month, helping to drive a rally in sterling on the foreign exchanges. The pound was helped by speculation ahead of the deal that an agreement could be reached, after months of negotiations over the issues of citizens’ rights, a financial settlement and the Irish border – gaining by almost 4% against the dollar in the month before the agreement. Since then, sterling has lost some of the gains, largely over concerns about the difficulty of the trade talks due to start early in the new year. Still, the pound remains more than 10% down against the dollar since the EU referendum in June 2016.
FTSE 100 benefits from Trump bump
Global equity markets have surged in the past month amid growing optimism in the US that Donald Trump’s tax cuts will make it into law – standing to boost the profits of global companies – a phenomenon known among City traders as the “Trump Bump”. Britain’s leading index of blue-chip shares, the FTSE 100, which includes several international firms, was no different last month, posting a gain of almost 2%. Markets have also taken strength from positive economic data in China and fading tensions between the US and North Korea. Britain’s FTSE 250 list, which has more companies rooted in the UK economy, has also made ground in the past month, gaining more than 2%.
Worse than forecast
The runup to Christmas was marred by an unexpected further increase in the rate of inflation, as the higher cost of importing food and fuel to the UK due to the pound’s weakness since the Brexit vote exacerbated the squeeze on British consumers. The consumer price index (CPI) rose to 3.1% in November from 3% in October, pushed higher by dearer computer games and a smaller November fall in airfares compared with a year ago. The increase forced the Bank of England’s governor, Mark Carney, to write a letter to the chancellor to explain the failure of the central bank to keep CPI within a percentage point of its 2% target. Still, there is hope for consumers; with economists forecasting the worst of the impact from the pound’s sudden devaluation after the EU referendum will soon pass – leading to a drop in inflation next year.
Better than forecast
Britain continues to import more from the EU and the rest of the world than it exports to other countries, despite hopes that the weakness in sterling since the referendum would help to boost exports. However, the trade in goods deficit came in at £10.8bn in the three months to October, which was better than the forecast of £11.5bn made by economists. The figures show the export of goods to non-EU countries increased as imports decreased, which will cheer supporters of Brexit who want to see the UK expand trade outside the single market. The trade in goods deficit with EU countries widened by £1.2bn to £23.9bn, as Britain bought more goods from the EU than it sold back. Still, when taking into account the UK’s dominant services sector, the level of the overall trade deficit widened by £800m to £6.9bn – showing the importance of a comprehensive free trade deal with the EU that encompasses services as well as the trade in goods.
Weaker than forecast
Key industries give mixed signals for economic growth
Britain’s dominant services industry showed signs of slowing in the last month amid Brexit uncertainty, as well as reporting the sharpest increase in prices they offer to customers since February 2008. The Markit/Cips purchasing managers’ index (PMI), a closely watched barometer of management sentiment about business activity, slipped to 53.8 in November from a six-month peak of 55.6 in October – against expectations for the gauge to fall to 55. Still, there was more positive news from the smaller construction and manufacturing sectors of the economy, which together account for about a fifth of GDP. The construction PMI jumped to 53.8 from 50.8 in October, beating expectations, while manufacturing also beat forecasts to record its strongest PMI in four years of 58.2 in November from 56.6 in October. Values above 50 indicate growth, while below 50 shows an industry in contraction.
Better than forecast
Public sector finances improve
Public sector net borrowing, excluding the nationalised banks, fell by £200m to £8.7bn in November when compared with the same month a year ago. It was the lowest November net borrowing since 2007, on the eve of the financial crisis. City economists had expected the deficit, which is the gap between government spending and tax receipts, to widen to £8.9bn. Previous months have also been better than expected, meaning that for the first eight months of 2017, the deficit has fallen by £3.1bn compared with the same period last year to £48.1bn, also the lowest figure at this stage of the financial year since 2007.
Worse than forecast
Britain’s jobs boom shows signs of slowing
Britain’s job creation machine in the years of recovery since the financial crisis has finally chugged into reverse, after figures in the past month showed a fall in the number in work. According to the Office for National Statistics, the number in work fell by 56,000 during the three months to October to stand at just over 32 million – the steepest drop since mid-2015. It also followed a smaller fall of 14,000 in the three months to September. Meanwhile, the UK’s unemployment rate remained steady at 4.3%, despite expectations for a further drop to 4.2% among forecasters. There was some good news however, as average weekly earnings excluding bonuses were 2.3% higher in the three month period to October – higher than expectations among City economists for wages to rise by 2.2%.
Retail sales receive Black Friday boost
Black Friday promotions helped boost high street and online sales in November, with retailers recording a monthly gain of 1.1% from the amount of goods sold in October. City economists had forecast an increase of 0.4% due to the biggest squeeze on living standards in memory from rising inflation and weak earnings growth. The biggest gains came for sales of electrical goods – typically in hot demand on the American-inspired period of discounts. However, economists have warned that consumers may have brought forward their Christmas shopping to take advantage of the cheap deal, which could mean weaker sales in the usually key month of December.
Clouds gather over the housing market
Property industry professionals are growing increasingly worried that Britain’s housing market has stalled, according to the latest monthly snapshot from the Royal Institution of Chartered Surveyors (RICS). Prices in London and the south-east are falling, offset by stronger growth in Wales, Northern Ireland and the north-west of England. The net balance of experts forecasting prices to rise across the country fell to zero from +1% in October – meeting the expectations of City economists. Sales are continuing to decline, albeit at a more modest pace than seen in recent months, with fewer people looking to sell their homes amid economic uncertainty.
And another thing we’ve learned this month … “Brexodus” of EU workers appears to be under way
The risk of skills shortages was thrown into sharp relief over the past month, as official figures showed net migration to Britain over the year to June dropped by the largest amount since records began. EU nationals account for three-quarters of those who chose to return to their native country, as the data showed net migration to Britain fell by 106,000 to 230,000. As a consequence, businesses are growing increasingly concerned over skills shortages, according to leading lobby groups including the CBI. The worry is borne out in official figures which showed as many as 798,000 jobs vacancies in the three months to October.
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