Sun, Apr 30, 2017 - Page 7 News List

Direction of UK economy unclear as nation heads to the polls

The British economy did not fall into recession after the Brexit referendum, as the IMF had predicted, but long-term growth prospects show no sign of recovery

By Katie Allen  /  The Guardian

The pound’s sharp fall since the Brexit referendum, and a mood of uncertainty among employers, have hit household budgets, creating a tough economic backdrop for British Prime Minister Theresa May’s snap election planned for June 8, a Guardian analysis shows.

The prime minister will be hoping the resilience seen in the UK economy will hold over the coming months, now that she has called an election in slightly less than a month. However, the Guardian’s monthly tracker of economic news shows living standards are already falling as rising prices outpace meagre pay growth.

That bodes ill for an economy reliant on household spending, and the latest indicators from Britain’s retail and leisure industries suggest they are feeling the effects of a tightening consumer squeeze. The export sector has failed to offset that domestic drag and GDP figures due this week are expected to show the economy slowed markedly at the start of this year.

Still, lending support to those who say May was right to call a vote sooner rather than later, unemployment remains low, the housing market is steady, stock markets are near record highs and business activity continues to rise — albeit at a slower pace.

How has the Brexit vote itself affected the UK economy? The economy appears to have lost momentum, but has comfortably avoided the recession some had predicted in the wake of the Brexit vote. Last week, the IMF was forced to admit yet again that it had been too gloomy on the consequences of the Brexit vote as it revised up its UK growth forecast for the second time in three months.

Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s monetary policy committee, said support for the UK from a strong global economy was being offset by domestic pressures.

“There are two big themes which stand out from this month’s data, and they show the UK being pulled in opposite directions by the global economy and consumer spending,” said Sentance, a senior economic adviser at the consultancy PwC.

“We should expect the consumer slowdown to dominate the growth picture over the course of this year ... GDP growth figures for the first quarter released at the end of this week are likely to confirm that the UK economy is already slowing,” he said.

To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE.

The dashboard for April shows retail sales have dropped, inflation is at its highest in more than three years, wages are falling in real terms and Britain’s trade performance has deteriorated. However, unemployment remains low, house prices continue to edge up and businesses are expanding.

The deficit of the public finances fell over the last year and the government hit its borrowing target, but the public finances were worse than market expectations for the latest month.

Compared with economists’ forecasts, there was a worse-than-expected performance in three of the eight categories. Two were better than expected, with three as forecast.

Stock markets remain near record highs and the pound has been given a fillip by news of the election, with investors predicting the result will strengthen May’s position in Brexit negotiations with her EU counterparts.

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