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How has Brexit vote affected the UK economy? September verdict

30-09-2019

Each month we look at key indicators to see what effect the Brexit process has had on growth, prosperity and trade.

  • Brexit uncertainty pushes UK to bring of recession
  • An expert looks at the data

Sterling recovery
The pound has recovered some of its value since it dropped in August to a decade-low against the euro of €1.07. Sterling’s summertime blues were triggered by Boris Johnson’s declaration soon after becoming prime minister that the government would suspend parliament as it prepared to leave the EU without a deal. Turmoil in the commons triggered another fall in early September, when the pound hit a three-year low against the dollar of below $1.20. But by the middle of the month, the government’s insistence that it would prefer to strike a deal with Brussels pushed sterling back to $1.25 and €1.13.

Traders cautious amid slowdown concerns
Fears that the two main drivers of global economic growth, China and the US, could be heading for a severe slowdown next year have frayed the nerves of traders across the main financial centres in London, Tokyo and New York. The US central bank, in a move to prevent the US economy from slowing, cut interest rates. Stock markets rewarded the Federal Reserve with a rally that took the Dow Jones Industrial Average from a two-month low of 25,479 on 14 August back up to a near-record 27,219 on 13 September. The FTSE followed suit, though with a more modest increase from 7,067 to 7,289.

Companies wait for Brexit to raise prices
UK inflation fell to its lowest level since late 2016 as the end of summer sales kept clothing prices down, while economists suggested that some companies were waiting for the outcome of Brexit before putting prices up. The consumer price index (CPI) dipped to 1.7% in August from 2.1% in July, according to the Office for National Statistics, easing some of the pressure on consumers. Economists warned that weakness in the pound since Boris Johnson became prime minister combined with a no-deal Brexit could push up inflation again in future.

Import volumes slide after stockpiling rush
Britain’s trade deficit – the shortfall between exports and imports – narrowed in July as companies held back from buying goods from overseas. Analysts said that British firms had opted to deplete their stockpiles built up ahead of the original Brexit deadline in March, rather than place new orders with overseas suppliers. The decline in imports reverses the trend earlier in the year when companies ramped up their stockpiles, rushing to buy goods from abroad to avoid Brexit disruption and pushing the trade deficit to record levels.According to the Office for National Statistics, the UK goods and services trade deficit in the three months to Julydecreased to £2.9bn following a £15.2bn, or 8.5% drop in imports to £164.4bn.

House prices stage modest increase
House prices across the UK still appear to be rising, although only just, as Brexit uncertainty saps the confidence of buyers and sellers. Prices are falling in London and the south-east but are continuing to rise in the north and Midlands. A gauge of house prices from the Royal Institution of Chartered Surveyors – which shows the difference between members reporting price rises and falls – improved to -4 in August from -9 in July, above the forecasts of City economists. Figures from the Land Registry and ONS reported that the year-on-year increase in UK house prices slowed to 0.7% in July, which was the weakest level since November 2012.

Source: The Guardian