The UK economy has shown some post-Brexit strength. All it needs now is stamina.
Focus is on whether the economy can sustain the initial robust readings that came last week.
Labor-market resilience and the best retail-sales growth in any July since 2002 helped push Citigroup Inc’s Economic Surprise Index, which measures the data’s strength relative to analysts’ forecasts, to its highest level since 2013.
Those reports — the first official numbers since the June referendum to leave the EU — confounded expectations for a slowdown. Investors pared bets for a Bank of England rate cut by November, and the pound posted its best weekly gain in more than a month.
While the new data suggest the UK is shrugging off economists’ warnings about post-Brexit turmoil, Joe Grice, chief economist at the UK’s Office for National Statistics, said it is too early to be definitive, and one week of numbers do not give the full picture. He told Bloomberg Television that “the story is still to unfold,” adding that there is limited information so far on business activity and trade.
“Anyone telling you that it’s Armageddon is lying and anyone that’s telling you it’s all dandy is lying,” said Grant Lewis, an economist at Daiwa Capital Markets in London who previously worked at the UK Treasury.
For the markets to start pricing out a rate cut by November, “it’s too early on the back of one retail-sales release,” he said.
While the Bank of England has already reduced its key interest rate since the Brexit vote — the first such action in more than seven years — a majority of policymakers expect another move if the economy deteriorates in line with their central forecast.
Still, the data might lay the groundwork for a more fundamental reassessment of the policy outlook if the economy continues to perform better than anticipated in the face of the Brexit shock.
Industrial production and trade figures for last month — the first full month after the EU referendum — will be published early next month.
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