How has the Brexit vote affected the economy? January verdict

Sterling hits highest level since Brexit referendum

The pound has had its best month since the EU referendum, rising almost 6% against the dollar to above $1.40, its highest level since the Brexit vote, after the better than expected employment figures on Wednesday. Much of the gains across the last month stem from the weak dollar, although City traders have also been betting the UK can achieve better Brexit terms than initially feared, admittedly without much hard evidence for this view. The pound has not done as well against the euro, edging up across the past month to hit nearly €1.47 on Wednesday. Sterling remains more than 5% down against the dollar compared to its June 2016 level.

FTSE 100 hits record highs

Global equity markets continued their pre-Christmas surge into the start of the new year, amid swelling investor confidence over the upswing in the global economy and the prospect of bumper corporate profits from Donald Trump’s tax cuts. I was the same for the FTSE 100, which hit a record high of 7,778.64 on 12 January, a gain for the month of about 2.5%. The second-tier FTSE 250 list, which has more companies rooted in the UK economy, rose by about 1.5%.

Meets forecast

Inflation eases for first time in six months

There were signs of the biggest squeeze on household budgets in five years, sparked by the fall in sterling after the Brexit vote, beginning to fade last month, as the affect of the sudden drop in the pound begins to wash its way through the system. The consumer price index (CPI) fell to 3% in December from 3.1% in November, helped by lower airfare costs and a fall in the price of games and toys. Economists think the rate of growth in prices will moderate further throughout 2018. The rate of inflation was still at its highest level since April 2012.

Worse than forecast

Monthly trade deficit widens despite positive broader trend

Britain continues to import more than it exports despite hopes that the weakness in sterling would help to increase exports. The total trade in goods and services deficit widened by £500m to £2.8bn in November over the previous month, driven wider by an increase in fuel imports from non-EU countries. In the three-month period to November, the trade deficit for goods and services narrowed by £2.1bn to £6.2bn, as manufacturers exported more machinery and transport equipment.

Better than forecast

Key industries give positive signals for economic growth

Britain’s dominant services industry grew at a faster rate than expected last month, setting the economy on course for its strongest quarter in 2017. The Markit/CIPS UK Services PMI rose to 54.2 in December from 53.8 in November, with a figure above 50 indicating growth. Alongside solid readings from the smaller manufacturing and construction sectors, the services survey suggested economic growth of between 0.4% and 0.5% in the final three months of 2017, as UK firms benefit from a continued global upswing in economic activity..

Better than forecast

Public sector finances give Hammond a boost

Britain’s budget deficit came in better than expected last month, handing a boost to chancellor Philip Hammond. Public sector net borrowing, excluding nationalised banks, fell by £2.5bn to stand at £2.6bn in December. For the first nine months of the 2017 financial year, the deficit has fallen by £6bn compared with the same period last year to £50bn – the lowest figure at this stage of the financial year since 2007.

Better than forecast

Signals of pay growth for British workers

Average weekly earnings excluding bonuses increased by 2.4% in the three months to November – the biggest increase in almost a year – amid record low levels of unemployment. Despite the increase, the rise still fails to match the rate of inflation, but is a promising sign for workers as the rate of growth in prices moderates. The number of people in work in Britain hit its highest level since comparable records began in the 1970s, with the employment rate rising to 75.3%.

Worse than forecast

Black Friday dents Christmas sales

Consumers sharply reining in spending over the Christmas period, as Black Friday deals encouraged them to purchase presents earlier, causing havoc for retailers on the high street. Spending fell 1.5% in December from November, which had been a bumper month for retail sales. The economy will suffer as a result of the slower sales, which come as consumers curb their spending due to inflation pushing up shop prices. A string of retailers have issued profit warnings in recent weeks, including Debenhams and Carpetright.

Better than forecast

Hammond fails to entice first-time buyers

The number of inquiries from first-time buyers fell in December – even after Philip Hammond’s abolition of stamp duty for the majority of first-time buyers announced at the budget a month earlier – according to property professionals. The latest monthly snapshot from the Royal Institution of Chartered Surveyors (RICS) showed 86% of industry experts in the survey had seen no response from first-time buyers last month. The survey found national house prices had edged higher, even as agreed sales slipped.

And another thing we’ve learned this month … households are falling further into the red

Official figures published last week suggested the vice-like grip on household budgets from weak wage growth and rising inflation since the Brexit vote could be combining to push more people into debt. Household spending rose at a faster pace than the increase in disposable income over the year to March, which experts said could have been fuelled by families borrowing on credit cards or bank loans. A separate IFS/Joseph Rowntree Foundation survey showed one in four of Britain’s poorest households are falling behind with debt payments or spending more than a quarter of their monthly income on repayments.

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