The British economy has shown no substantial signs of a major slowdown in the months following the decision to leave the European Union, and has cleared the “first fence” in a post-EU world, according to analysis from Britain’s official statistical authority, the ONS.
The Office for National Statistics released the first of a special series of what it calls an “Assessment of the UK post-referendum economy” on Wednesday morning, and for those worried about what the Brexit vote might mean for the UK’s prosperity.
“As the available information grows, the referendum result appears, so far, not to have had a major effect on the UK economy. So it hasn’t fallen at the first fence but longer-term effects remain to be seen. The index of services published soon and the preliminary estimate of third quarter GDP, published at the end of October will add significantly to the evidence,” Joe Grice, the ONS’ chief economist said.
In the immediate aftermath of the referendum, fears about a possible collapse in the UK economy were rampant. Markets collapsed, with the pound plunging to a 31-year low and stocks — particularly in the financial sector — crashing in the days and weeks after the vote. Then, IHS Markit’s widely respected PMI surveys in all three crucial sectors of the economy — services, manufacturing, and construction — showed a massive drop in the month of July.
Many predicted a coming recession, with several banks and economic research houses arguing we’d see the first recession in the UK since the end of the financial crisis.
However, since then, things have rebounded somewhat. In August, IHS Markit’s PMI surveys for all three crucial sectors of the economy — services, manufacturing, and construction — bounced back from disastrous figures in July.
Manufacturing, for instance, saw its biggest single month jump in history, while services jumped quicker than at any time in 20 years. The construction sector remained in contraction,but it is important to note that the sector was already shrinking even before the Brexit vote.
On top of the PMIs, retail sales remained strong and business confidence bounced. The economic data didn’t seem to reflect the doom-laden predictions of many economists soon after Britain backed Brexit.
All in all, things didn’t look as bad as we might think, and the ONS agrees. Here’s an extract from the report:
“The post-referendum picture is still emerging and will continue to do so over coming months, quarters and years. Information so far generally covers short-term indicators with other important information not yet available. Nevertheless, there has been no sign of a major collapse in confidence and, within the data that is available, some indicators of strength.”
The ONS’ argument is corroborated by the Bank of England’s latest Agents’ Report, also released on Wednesday, which noted three key points from the months of May to August:
“The annual rate of activity growth had slowed overall as uncertainty had risen following the EU referendum, although it had remained positive. However, business sentiment had improved slightly in August following a marked dip in the immediate aftermath of the referendum.
“Consumer spending growth and confidence had been more resilient. Although housing market activity had fallen markedly in London and in parts of the surrounding area, it had held up relatively well in other parts of the United Kingdom.
“Companies’ investment and employment intentions had fallen, and were consistent with broadly flat levels of capital spending and employment over the coming six to twelve months.”
The full picture of how Brexit will hit the economy will not become clear until Britain actually leaves the European Union, but while we wait for negotiations to begin, it doesn’t look like the uncertainty of Brexit is killing the economy just yet.