How has the Brexit vote affected the UK economy? November verdict

Pound rises and falls after rate hike and resignations

Sterling has bounced around in recent weeks, rising and falling on foreign exchanges due to Bank of England actions and concerns over the stability of Theresa May’s government prompted by two cabinet resignations – ultimately ending the month pretty much where it started. The first rate hike in a decade by Threadneedle Street received a cool reception from City traders who doubt whether the central bank will raise the cost of borrowing much further any time soon. The pound fell almost 2% against the dollar when it raised rates from 0.25% to 0.5% on 2 November, although it has since recovered almost all the lost ground. Sterling remains more than 10% down against the dollar since the EU referendum in June 2016.

FTSE 100 slips from record high last month

The leading index of blue chip shares has slipped in recent weeks after closing at a record high last month, falling by more than 1% as sterling recovers ground against other major currencies. The pound’s weakness is the FTSE 100’s strength because companies in the index are typically global firms, which make significant sums of money in foreign currencies. Therefore a weak pound increases their bottom line and thus their stock prices. When sterling rises, as it has done in recent weeks, the opposite happens. The FTSE 250 list, which has more companies rooted in the UK economy, has also fallen by about 1% over the past month.

Better than forecast

Inflation holds steady despite rising food costs

Against expectations from the Bank of England for the squeeze on households to intensify last month, the rate of inflation remained steady in October compared with September. Still, the consumer price index (CPI) stood at 3%, the highest level in five years, driven by the higher cost of importing food to the UK after the fall in sterling since the Brexit vote. Food prices were up by 4.2% on 12 months earlier, a sharp increase on the 0.6% that food inflation was running at just a year ago. Retailers are likely to be troubled by the figures in the run-up to Christmas, with the high cost of buying presents and food likely to eat into the ability of consumers to splash out.

Better than forecast

Hopes that the weak pound since the referendum would increase exports, giving an economic uplift to offset a downturn in consumer spending, were given a boost last month as the gap between what Britain imports and exports fell to £2.75bn in September, better than expected. That was an improvement on a trade gap of £3.45bn in August. However, the figures show greater export volumes to the EU as the trade deficit widens with the rest of the world. Exports to non-EU countries fell by £1.7bn, while exports to the EU increased by £900m, which analysts attributed to the eurozone’s economic recovery.

Better than forecast

Key industries signal stronger economic growth

Key barometers of management sentiment about business activity brought mixed news in October. While optimism among firms slipped to a 15-month low and job creation slowed, there was an upturn in activity pointing to the strongest economic growth for six months. Services, the UK’s biggest sector, recorded a big improvement from September. The Markit/CIPS purchasing managers’ index (PMI) for the sector came in at 55.6 in October, beating analyst expectations, rising from 53.6 in September. Manufacturers reported higher prices for goods used in the production process, eroding the benefit from the weakness in the pound when selling abroad. But the gauge of factory output came in at 56.3, above estimates and slightly better than the 56 level recorded in September. The PMI measures, where anything above 50 indicates expansion, are tracked for early clues on official GDP figures.

Worse than forecast

Deficit gives Hammond a budget headache

Britain’s deficit widened unexpectedly last month, causing a headache for Philip Hammond, with the figures released a day before the budget. Public sector net borrowing, excluding the nationalised banks, grew by £500m to £8bn in October when compared with the same month a year ago. City economists had expected the deficit, which is the gap between government spending and tax receipts, to improve by £500m to stand at £7bn. The wider deficit was fuelled by the government paying more on debt linked to the rate of inflation – which has soared in recent months due to the Brexit-induced fall in sterling. Despite the deterioration in October, previous months have been better than expected, meaning that for the first seven months of 2017 the deficit has fallen by £4.1bn to £38.5bn, making 2017 so far the best start to the year in a decade.

Better than forecast

Britain’s jobs boom shows signs of slowing

The first signs that Britain’s jobs boom of recent years is coming to an end emerged in the past month, as figures from the Office for National Statistics show a 14,000 fall in the number in work in the three months to September – the first decline since April 2013. Meanwhile, average weekly earnings excluding bonuses were 2.2% higher in the same period – no change on the upwardly revised figures for the period ending in August. That was slightly better than City expectations for wages to rise by 2.1%.

Better than forecast

Retail sales see first annual decline since 2013

High street sales bounced back in October, gaining by 0.3% compared with a monthly drop of 0.7% in September, beating expectations. Still, on an annual basis the UK recorded its first year-on-year drop in consumer spending since 2013, illustrating the pressure facing households from the rising cost of living. The uptick in inflation helped push the volume of goods bought in shops and online down by 0.3% from October 2016. Economists will be looking at the key Christmas shopping period ahead to gauge the resilience of consumer spending, which is a key driver for the health of the economy.

Worse than forecast

Clouds gather over the housing market

The latest monthly snapshot from the Royal Institution of Chartered Surveyors (RICS) show Britain’s housing market has stalled, with fewer people looking to buy a new home and prices barely rising across the UK. The survey of property professionals found only 1% who expect house prices will rise nationally, down from 6% in September, which fell short of forecasts by City economists for a balance of 4%. Interest from buyers continued to drop, with 20% more surveyors reporting a fall in new buyer enquiries than an increase. Nearly two-thirds of surveyors reported a drop in prices over the month – the poorest reading since the depth of the financial crisis in 2009.

And another thing we’ve learned this month … English citizens are happier since the Brexit vote

Despite research showing British households are each more than £600 a year worse off following the vote to leave the European Union, rising inflation, low wage growth and political turmoil, England is now officially happier than ever before a year after the Brexit vote. Key barometers of happiness and wellbeing measured by the Office for National Statistics (ONS) showed small improvements over the year to the end of June – the first 12-month period since the referendum. But even though there was an increase in England, there was no change in reported personal wellbeing recorded in Scotland, Wales or Northern Ireland. Perhaps most surprisingly – given terror attacks earlier this year and an election that led one woman from Bristol to cry “not another one!” – the ONS found no change in anxiety levels compared to a year ago.

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