MON 29 Apr 2019 12.49 BST
Sterling tumbles on Brexit concerns
Sterling markets
Euro v £Dollar v £
Source: Thomson Reuters
The pound has been on a wild ride over the past month, as the political turmoil over Brexit developed into a full-blown national crisis. Sterling surged to a high-point for the year of more than $1.33 against the US dollar in March amid speculation a deal could be agreed, but sank back down below $1.30 as the chances of Theresa May pushing her Brexit deal through parliament evaporated. The pound has dropped by 2% against the dollar and 1.5% against the euro. Sterling remains worth about 13% less than before the EU referendum in June 2016.
Stock markets surge to six-month high
FTSE100 index
Source: Thomson Reuters
FTSE250 index
Source: Thomson Reuters
The FTSE 100 burst through the 7,500-point mark this week for the first time since October, helped by central banks around the world leaving interest rates on hold and robust economic data from some of the globe’s biggest economies. The weaker pound has also helped Britain’s biggest companies, which make the bulk of their profits from abroad in foreign currencies. The International Monetary Fund has, however, warned that the majority of countries worldwide can expect slower growth in 2019, in a signal that the recent gains on the financial markets could be short-lived. The FTSE 100 has risen by 4% on the month.
Better than forecast
Inflation unexpectedly holds steady
Consumer prices index, % change
Source: ONS
UK households received some better news last month after the consumer price index (CPI) measure of inflation unexpectedly remained at 1.9%, unchanged from February, despite expectations for a slight increase in the cost of living. The rising cost of petrol for consumers was offset by falling food prices and computer game prices rising more slowly than a year ago. Nonetheless, a rising oil price on the global markets will add to pressure facing consumers in future, while a sudden drop in the pound in the event of a no-deal Brexit would cause inflation to rise further.
Worse than forecast
Trade deficit widens
Trade balance, £bn, goods and services, seasonally adjusted
Source: ONS
The stockpiling rush to avoid Brexit disruption was evident in latest trade figures, as the UK recorded a record monthly goods trade deficit for the second month in a row in February, as British firms bought more merchandise from abroad than was sold overseas. The goods trade deficit was £14.1bn in February, almost £2bn more than economists’ forecasts.
Worse than forecast
Business activity stalls as Brexit nears
Activity levels
All sector PMI, output index. Values above 50 indicate growth, below 50, contraction
Source: IHS Markit
The latest surveys of business activity, used as an early warning indicator by the Bank of England, showed the economy stalling in the first quarter and at risk of sliding into a downturn, after the weakest performance in the private sector in almost seven years. The surveys have proven gloomier than official figures over the past few months, although still paint a worrying picture for the path ahead, as British firms put spending decisions on hold. According to the survey from IHS Markit and the Chartered Institute of Procurement and Supply, both the construction and service sectors plunged into reverse in March, while manufacturing was only able to expand because of emergency stockpiling in the run-up to Brexit.
Meets forecast
Wages increase as unemployment remains steady
Unemployment
Seasonally adjusted rate for age 16 and over, three months ending in month shown, %
Source: ONS
Wages
Average earnings annual growth, three months ending in month shown, %
Source: ONS
Pay growth in Britain continued to rise at the fastest rate in more than a decade in February, as companies kept hiring despite growing fears over Brexit. In a sign that British workers are starting to repair the damage from a decade of lost wage growth since the financial crisis, average weekly earnings rose by 3.5% on the year, meeting the forecasts of City economists. Companies hired an additional 179,000 workers to keep employment at a record high and unemployment at 3.9%, the lowest since the mid-1970s. However, economists warned that businesses have delayed investments and opted to hire workers instead amid the uncertainty over Brexit. Real wages are also still below the peak recorded before the financial crisis.
Better than forecast
Shoppers shrug off Brexit fears
Retail sales
Month on month change, %, seasonally adjusted
Source: ONS
Britain’s consumers appeared to have ignored the turmoil at Westminster last month and kept on spending in high street stores and online. Despite fears that sales would fall as Brexit neared, figures from the ONS showed that retail sales rose 1.1% in March on the month. Economists said last month’s mild weather helped to increase sales, as all categories of retail spending apart from department stores and household goods rose in the three months to March.
Worse than forecast
Hammond misses budget deficit target
Government borrowing
2015/162016/172017/182018/19
Philip Hammond missed his annual target for bringing down the budget deficit in the latest financial year, despite borrowing dropping to the lowest level since 2002 during 2018-2019. Public sector net borrowing was £1.9bn more than the £22.8bn forecast by the Office for Budget Responsibility, the government’s tax and spending watchdog, as spending rose by more than expected in March. Britain ran a budget deficit of £1.7bn in the month of March, above the £400m forecast made by City economists. However, the latest snapshot showed a steady improvement for the public finances since a peak for borrowing after the financial crisis of £153.1bn, recorded in 2010.
Better than forecast
House price barometer improves
RICS house price indicator
Proportion of respondents reporting a rise in prices minus those reporting a fall, %
Source: RICS
The slump in the British housing market may have bottomed out in March, after a closely watched survey of sales activity staged a modest improvement. The Royal Institution of Chartered Surveyors’ monthly house price balance – measuring the difference between the number of estate agents and property surveyors anticipating increases and those expecting decreases – edged up to -24% in March from -27% in February. However, prices are still forecast to fall in the coming months, as the lack of clarity over Brexit weighs on the property market.
And another thing we’ve learned this month … productivity growth is slowing as Brexit bites
Economists regard productivity gains as the most important driver of rising living standards over the long term. Amid fears that Brexit could sap the strength of the UK economy over the next decade, the measure of growth in economic output per hour of work slumped in 2018, according to the latest figures, as the UK managed only a quarter of the rate of productivity growth seen before the financial crisis. Productivity grew by 0.5% last year compared with 2017, well below the 2% a year average recorded before the 2008 crash. Productivity gains are linked to investments in the economy, but Brexit has led corporate spending to fall dramatically. Economists fear that lower levels of business investment will mean weaker levels of productivity growth in future, paving the way for lower GDP growth and sluggish pay rises for workers.
