How has Brexit vote affected UK economy?

The pound has risen sharply over the past month as currency traders in the City of London bet that an election victory for Boris Johnson’s Conservatives would lift some of the intense political uncertainty facing Britain. Sterling jumped by more than two cents against the US dollar and the euro after exit polls indicated a Tory majority. However, the pound gave up its post-election gains after the prime minister said that he would enshrine into law the end of the Brexit transition in December 2020, raising the prospect of Britain leaving the EU and reverting to World Trade Organization rules – a development that economists consider would be damaging for the economy. Still, over the course of the past month the pound has risen by about a cent against the dollar. It is still down by more than 12% on its pre-Brexit vote position.

Stock markets rally on Brexit hopes and US-China trade deal

Stock markets around the world have surged over the past month amid mounting hopes of a resolution in the US-China trade deal, a standoff that has weighed on the world economy. Against the backdrop of easing tensions, the FTSE 100 has risen by more than 300 points in the past month and stands at about 7,600. Shares in major British companies, including banks, housebuilders and utility firms that faced the prospect of nationalisation under Labour, also rallied strongly after Johnson’s election victory.

Inflation stays low despite rising cost of chocolate

UK inflation remained at the lowest level in three years in November despite rising prices for goods including chocolate, concert tickets and holidays. In a positive development for hard-pressed households in the run-up to Christmas, the Office for National Statistics said the consumer price index held steady at 1.5% in November – the same level as recorded in October. City economists had forecast inflation would fall slightly to 1.4%. The inflation reading below the Bank of England’s 2% target could help to encourage the central bank to cut interest rates, as the economy falters against a backdrop of continued Brexit uncertainty.

Brexit stockpiling boosts imports

British companies rushing to stockpile imports in the buildup to the previous October Brexit deadline caused Britain’s trade deficit to widen over the month. The shortfall between the value of goods and services sold abroad and imported to the UK increased by about £3bn on the previous month to reach £14.5bn in October, amid a surge in imports before the Halloween deadline. The trade in goods deficit, excluding services, rose from £1.9bn in September to £5.2bn, above the consensus estimate of City economists for an increase to £3bn. Analysts said that underlying demand for UK exports remained depressed by the uncertainty over Brexit, with some overseas companies shunning the UK, given the lack of clarity over the future trading relationship with the EU.

Business activity muted ahead of election

Heightened political uncertainty in the run-up to the general election depressed business activity levels in November, according to closely watched surveys suggesting that economic growth stalled in the final months of 2019. The latest snapshot from IHS Markit and the Chartered Institute of Procurement and Supply showed the UK’s dominant service sector, which accounts for about 80% of the economy, failed to grow for the third month in a row. The all-sector purchasing managers’ index, which takes into account manufacturing output and construction activity alongside services, rose to 49.3 in November from 48.5 a month earlier, on a scale where 50.0 separates growth from expansion. Although an improvement, the reading was below the expectations of City economists.

Wage growth slows despite falling unemployment

Wage growth across Britain slowed for the third month running, despite employers continuing to hire workers against a backdrop of Brexit uncertainty. The ONS said annual growth in average weekly earnings dropped to 3.2% in the three months to the end of October, when the Brexit deadline loomed – down from 3.6% a month earlier. Average weekly pay growth excluding one-off bonuses also dropped slightly to 3.5%, down from 3.6% in September. Unemployment remained at 3.8%, the lowest level since the mid-1970s, while employers continued to hire new workers in the run-up to the Brexit deadline. However, analysts said that continued hiring was dependent on the public sector, as businesses struggled amid the slowdown in the UK and global economy.