Weaker demand, slower growth, faster inflation — that is the UK economy that the Bank of England sees in its crystal ball after the nation voted for Brexit.
Now the first hard numbers are on the way.
So far, surveys and estimates have mostly — though not comprehensively -- shown that the June 23 decision to quit the EU has prompted a downturn.
The UK Office for National Statistics this week is to publish figures giving more solid clues as to whether that is the case.
If the UK National Institute of Economic and Social Research is right, weakness should start to appear pretty quickly.
The London-based think tank estimates the economy shrank at the start of the third quarter, contracting about 0.2 percent last month alone.
The Bank of England cut its economic forecasts by the most ever on Aug. 4, though economists said this week’s releases are not likely to show a dramatic deterioration just yet.
At Investec, Victoria Clarke and Chris Hare said that the figures are likely to show “relatively modest post-Brexit referendum effects,” with significant changes coming further down the line.
INFLATION
For now, they expect early hints of upward price momentum and signs of a negative impact creeping into the labor market and public finances data.
The most marked and sustained impact of Brexit on markets was the exchange rate, and that is a worry for an inflation-targeting central bank like the Bank of England.
Releases on Tuesday will provide an insight into how fast the pound’s 12 percent decline on a trade-weighted basis is driving up consumer prices.
Over the medium term, the Bank of England expects weaker sterling will push price growth back to its 2 percent target at a faster pace than previously envisaged.
While economists see the headline inflation rate staying at 0.5 percent for last month, prices of products from cars to mobile phones have already started creeping higher as firms pay more for imports. Producer-price figures released the same day could show any early impact on companies’ costs.
KEY METRICS
On Wednesday, the office is to release labor-market data. Jobless claims figures will cover last month, though the more detailed International Labour Organization report — on key metrics such as employment and wage growth — will be for the April-June period.
The bank forecasts unemployment is likely to rise to 5.5 percent at the end of next year from 4.9 percent currently.
A faltering job market combined with an upswing in prices could hit a crucial part of the economy: domestic spending. That key driver of growth has so far proved resilient. Even with consumer confidence dropping, the British Retail Consortium said that retail sales rose the most in five months last month.
SUMMER SEASON
However, those figures were helped by discounting and by food and drink sales as the English summer finally got under way.
The office will give its take on Thursday with last month’s retail-sales numbers that are forecast to show stagnation.
June saw a 0.9 percent drop, the most this year, and a bank survey showed household spending was starting to wane even prior to the EU vote.
The week ends with the latest snapshot of the public finances. Four months into the fiscal year and new British Chancellor of the Exchequer Philip Hammond is dropping heavy hints that government stimulus is on the way to back up the Bank of England’s monetary easing.
He has already abandoned his predecessor George Osborne’s plan to deliver a budget surplus by 2020 and vowed to do whatever is necessary in his year-end Autumn Statement “to keep the economy on track.”
July is usually a good month for the public finances, with the Treasury receiving higher-than-normal receipts of income tax and corporation tax. Economists predict a budget surplus of £1.9 billion (US$2.5 billion), up from £1.2 billion in July last year.
However, Brexit is likely to take its toll before long. According to independent forecasts compiled by the Her Majesty’s Treasury last month, the deficit will total 129 billion pounds between April 2016 and March 2018, a third more than officials predicted in March.
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