Inflation surge shows impact of vote finally beginning to bite

Britain’s vote to leave the EU is finally feeding through to the UK economy, according to a Guardian analysis that shows rising inflation is offsetting brisk trade for businesses.

Buoyant consumer spending, a low unemployment rate, rising house prices and continued growth for the country’s dominant services sector point to a strong finish to the year, defying earlier forecasts from the Bank of England and others that the economy would grind to a standstill.

But worries are growing over prospects for 2017 as signs emerge that the Brexit vote’s blow to the pound is stoking inflation and hitting people’s spending power.

As the starting date for negotiations over leaving the EU approaches, the pound has come under fresh pressure in recent weeks and been prone to further downward lurches with every political mention of Brexit – most recently from Scotland’s first minister Nicola Sturgeon raising the prospect of a new independence vote for Scotland.

To track 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 December shows a better than expected performance in four of the eight categories. Two were as expected, one was worse and inflation was higher than economists had forecast, fanning fears that household budgets will be squeezed by higher prices next year.

Six months on from the vote to leave the EU, the latest batch of figures show wage growth remains solid, headline unemployment remains low, business activity continues to expand and house prices are still rising. The FTSE 100 leading share index is close to an all-time high hit in October and the more domestically focused FTSE midcap index is above its pre-referendum level.

But the pace of hiring has slowed, retail sales growth has eased off and inflation is at a two-year high as the weak pound raises the cost of imports to the UK. The public finances were in a worse state than forecast in November and, looking ahead, they are expected to be in deficit for far longer than had been predicted before the referendum.

Britain’s trading position improved more than expected in the latest monthly figures but substantial revisions to earlier data show the trade gap with the rest of the world ballooned to a near three-year high in the three months following the referendum.

Economists point to several indicators suggesting negative effects of the Brexit vote could be more keenly felt in 2017. Surveys and business investment figures suggest British-based firms are more reluctant to spend. Consumers have become more cautious and they expect inflation to quicken over the coming year.

The author: Michel THEYS

Michel Theys, a Belgian native, began his career as a civil servant, serving the public for several decades. After retirement, he shifted gears to follow his passion for journalism. With a background in public administration, Theys brought a unique perspective to his reporting. His insightful articles, covering a wide array of topics, swiftly gained recognition. Today, Michel Theys is a respected journalist known for his balanced and thoughtful reporting in the Belgian media landscape.

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