How has the Brexit vote affected the UK economy? September verdict Read more

Fears that Britain will slide into a post-referendum recession have been allayed after a Guardian analysis showed the latest news on the economy has confounded analysts’ gloomy expectations, with consumer spending strong, unemployment low and the housing market holding steady.

The finding comes as a leading thinktank toned down its earlier dire warnings of economic turmoil for the UK and its neighbours in the event of a leave vote. The Paris-based Organisation for Economic Cooperation and Development (OECD) said prompt action by the Bank of England to cut interest rates had cushioned the blow from June’s Brexit vote but it still believes the UK will suffer a sharp slowdown next year amid heightened uncertainty.

Official figures on the state of the public finances, released on Wednesday, also showed little impact from the vote to leave the EU. Government borrowing was a touch higher than economists had expected in August, but was lower than a year ago in a boost to the chancellor, Philip Hammond, as he prepares to give his maiden autumn statement in November.

Following the historic 23 June vote to leave the EU, analysts were quick to predict the UK economy would grind to a halt or even shrink. They warned businesses and households would stop spending because of job cuts, political uncertainty and a squeeze on living standards as the weak pound stoked inflation.



But since the Bank stepped in with a package of measures to shore up the economy, much of the economic news has defied expectations and many analysts have toned down their post-referendum gloom.

Now the picture of early resilience is bolstered in the first snapshot of post-referendum Britain in a new Guardian project that will track the economy as the Brexit talks begin and progress, and as more data on the economy becomes available.

The Guardian has chosen eight economic indicators, as well as the value of the pound against the dollar and euro, to illustrate the state of the economy.

While there are warning signs of possible problems ahead, the dashboard shows a better than expected performance in four of the eight categories analysed. Two were as expected and inflation came in below forecasts, defying expectations for a post-referendum pick-up in price rises. Public borrowing was a little worse than forecast, at £10.5bn in August, compared with the £10bn predicted by economists.

Facebook Twitter Pinterest Philip Hammond said the underlying strength in the UK economy would support growth this year. Photograph: Laura Lean/PA

Speaking after the latest figures, Hammond highlighted signs of resilience. “The underlying strength in the UK economy will support growth this year, and we have seen that in the labour market where employment is at a record high,” he said.

On Wednesday, investment bank UBS became the latest to revise up its forecasts for growth. It now expects GDP to expand 1.9%, rather than 1.3%, in 2016. In 2017 growth is expected to slow sharply to 0.7%, just above a previous forecast of 0.5%.



Joe Grice, the chief economist at the Office for National Statistics, said a check on the data out so far suggested there had not been a huge shock to the economy.

“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,” he said.

The Guardian’s dashboard shows that consumer spending, business activity, house prices and wage growth have all beaten forecasts. Unemployment has held at an 11-year low of 4.9% and exports appear to have been helped by a weaker pound.

'Prepare for the worst, hope for the best': economists on the Brexit watch data Read more

But behind the headline messages of continued high-street spending and a rebound in business activity, there are telltale signs of challenges that could hit the economy just as Britain embarks on what may be the “most complicated negotiation of all time”, as the Brexit secretary, David Davis, has described it. Statisticians have also warned against reading too much into any one month’s data.



Firms are already complaining of a rise in the cost of materials as the weak pound raises import prices. They must decide whether to pass that on to consumers or take a hit to their profits. At the same time, wage growth has slowed, albeit by less than economists predicted.

The prospect of slower earnings and higher inflation raises the spectre of British workers’ pay packets falling in real terms. There are also worries that young people will bear the brunt of any downturn, with early signs that graduate job schemes have been cut since the Brexit vote.

Businesses have spoken of their fears that the economy will slow markedly when Brexit negotiations begin in earnest, which has made them nervous about investing.



Facebook Twitter Pinterest Analysts had predicted a drop in house prices but fears have been allayed by figures from HMRC. Photograph: Bloomberg/Getty Images

In their latest check on the economy, the Bank’s agents around the country said companies’ investment and employment intentions had fallen. But consumer spending growth and confidence had been more resilient, they added.

In the housing market, analysts predicted a drop in house prices following the Brexit vote but property transaction figures from the HMRC on Wednesday confounded those fears of a crash. Residential property transactions were flat between July and August, but down 6.1% from a year ago. Similarly, a check on surveyors’ expectations from the Royal Institution of Chartered Surveyors suggested that confidence was already returning to the housing market in August.

The Bank last week held interest rates at their record low of 0.25%, with its monetary policy committee (MPC) conceding that “a number of indicators of near-term economic activity have been somewhat stronger than expected”. Policymakers still expect a “material slowing” in the second half of this year and continued to hint at another rate cut to about 0.1%.



Speaking to the Guardian, the former MPC member David Blanchflower said policymakers were wise to act quickly after the vote. He believes the Bank learned lessons from the global financial crisis.

“The collapse in business and consumer confidence data from April 2008 was the earliest signal that the Great Recession had started. So it was sensible for the MPC to act when they collapsed after the Brexit vote and not to wait, as some have suggested, for the ‘hard data’,” said Blanchflower, a professor of economics at Dartmouth College, New Hampshire. “My worry is that there is a lot of bad news to come. It is good to get your retaliation in first. Prepare for the worst and hope for the best.”

Facebook Twitter Pinterest David Blanchflower, a former member of the MPC. Photograph: Bloomberg/Getty Images

But another former MPC member, Andrew Sentance, said the Bank was wrong to cut interest rates so soon. He fears savers will suffer from even lower returns, while there is a risk that cheap borrowing costs will drive a further surge in house prices.



“I believe the Bank should have held fire until it had more evidence on how the economy would respond to the post-Brexit shock. There is a genuine danger of unintended adverse consequences from their current policy,” said Sentance, now senior economic adviser at the consultancy PwC.



Overall, Sentance feels the economic indicators so far have been mixed. “The economy seems to have rebounded after the shock to confidence in July, helped by the stabilisation in the political situation,” he said. “Retail sales and other measures of consumer spending have held up reasonably well. But estimates for the overall growth of the economy in the third quarter point to an increase of just 0.2%-0.3% over the previous quarter.”

The dashboard analyses the performance of areas of the economy since April, comparing key economic indicators with the predictions of those indicators, based on the consensus forecasts in polls of economists by Reuters.

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