August’s 2.9% inflation rate, the highest in five years, follows signs of slowing growth, weak consumption and stalling investment. All this at a time when prospects in the other advanced economies are positive.
“The global economy continues to put in a beautiful shift,” says Erik Nielsen, chief global economist for banking group Unicredit. “The one exception to this very nice global picture is the UK, where the Brexit decision, and particularly the way the UK government has decided to handle it, is now being felt pretty strongly.”
Nielsen is far from alone. Deutsche Bank points out that in the first half of the year consumer spending, which accounts for around 60% of the UK’s economy, slipped to a 1% annualised rate compared with 3% last year. “Is the UK consumer over the worst?” it asks. “We don’t think so”. Brexit uncertainty is keeping wage settlements in check while the Brexit-induced fall in the pound is fuelling inflation. As a result, real wage growth “is unlikely to get above zero until towards the end of 2018.”
Deutsche also think the risks are rising for unemployment, mainly because “the real driver of UK employment is services (where) survey data looks weaker, (and) hiring intentions in the retail sector – one of the dominant sectors in post crisis jobs growth – have collapsed.”
Business is voicing its concerns more openly now that Theresa May’s government is weaker since her ill-fated election. The British Chamber of Commerce last week said that the fall in the pound since the referendum has failed to boost growth. Yes, cheaper UK exports have increased, helped incidentally by the European economic recovery. But imports have become more expensive so there has been little improvement in the trade figures. This means trade is not adding to UK growth this year, according to Barclays’ Fabrice Montagne.
Meanwhile, Mark Carney, Governor of the Bank of England, has warned that Brexit uncertainty is hitting business investment, which the Bank now anticipates will be a fifth lower in 2020 than it expected before the referendum. It has also cut its growth forecast for 2017 to 1.7%. Nevertheless, Carney warned that interest rates were likely to rise, signalling another hit to heavily indebted consumers.
The current trends in the UK economy are anything but robust – and this can be directly attributed to Brexit.
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Edited by Hugo Dixon
It is unfortunately impossible to imagine that the government will wake up to the slowly declining situation of the UK economy and realize that they have made a mistake. They have started a movement, driven by the hard right of their party, which they are incapable of halting. So the process has to go on until the logical outcome which only they can not see.
Can anyone think of a comparable period in the UK’s history ?