How has the economy reacted to the vote to leave the EU? Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade in the UK

Pound slumps against the euro

The pound slumped to three-decade lows against the US dollar after the Brexit vote on worries about the UK economy’s long-term prospects outside the EU. This month, Sterling has been caught in the crossfire as the euro made gains and the dollar faltered. The pound dropped to its lowest level against the euro in 2017 after Mario Draghi, head of the European Central Bank, pushed the eurozone currency higher by saying he could start tightening monetary policy. Meanwhile, dovish comments from the Federal Reserve and political turbulence in Washington fuelled a drop in the dollar against sterling. Compared with the night of June’s referendum, the pound is down about 13% against the dollar and around 16% against the euro.

FTSE 100 climbs gradually higher

The FTSE 100 index of shares in big companies plunged the day after the referendum but quickly recovered and ended 2016 at an all-time peak. That rise was driven in part by the pound’s weakness which helps the many companies in the index that report in dollars and those that export from the UK. The FTSE 100 was buoyed after Janet Yellen, the chair of the Federal Reserve, suggested weak inflation would prompt the US central bank to slow down its path of interest rate rises. The FTSE 100 is now around 15% above its level on the night of the Brexit vote. The more domestically-focused FTSE 250 index of midcaps is up about 13% from its level on 23 June.

Better than forecast

Inflation figures show light at the end of the tunnel

Inflation has risen since the Brexit vote as the pound’s sharp drop makes imports to the UK more expensive. Last month the rate of inflation unexpectedly remained static at 2.6%, the same level as recorded in June and lower than economists had predicted. The figure, which could indicate inflation is close to its peak, was mainly driven by lower petrol and diesel prices, offsetting the rising cost of food, clothing and household goods. But it will be noticeable to households who were enjoying a period of virtually no inflation at all before the Brexit vote. At 2.6% inflation is still well above the Bank of England’s 2% target, while it’s also contributing to the fall in real wages as prices rise faster than current pay growth.

Worse than forecast

UK’s trade performance worsens



There has been some evidence of a boost to exports from the weaker pound, raising hopes that a stronger trade performance can offset a downturn in consumer spending. But the latest official trade figures for June showed the weaker currency had failed to lift sales of UK-made goods abroad, leading to the trade in goods deficit widening unexpectedly to £12.7bn, from £11.3bn in May. Exports fell by 2.8% but imports rose by 1.6% according to the Office for National Statistics. It was the biggest deficit in nine months and much wider than economists’ forecasts of £11bn.

Better than forecast

Export survey shows positive signs for GDP growth

Key barometers of firms’ sentiment about business activity were positive in July, as they recovered from previous weaker levels. The Markit/CIPS UK manufacturing purchasing managers’ index rose to 55.1 in July, up from 54.2 the month before. A figure above 50 indicates expansion, while the survey also beat economists’ forecasts for 54.4. The reports are tracked for early clues on official GDP figures, and showed job creation quickened in July, while production picked up and order books improved, according to the poll of purchasing managers at more than 600 industrial companies.

Better than forecast

Deficit narrows as VAT receipts recover

There was unexpected good news for the public finances in July, as the government recorded its first budget surplus for that month in more than a decade. Public sector net borrowing last month, excluding the nationalised banks, was in surplus by £184m, according to the Office for National Statistics, while City economists had expected the government to record a £1bn deficit. However, the boost could just be a one-off blip, as July is typically busier for self-assessed tax receipts. The Office for Budget Responsibility, the Treasury’s independent forecaster, expects that the public sector will borrow £58.3bn during the current financial year, an increase of £13.2bn on the year ending March 2017.

Better than forecast

Unemployment lowest since mid 1970s

The lowest level of unemployment since the mid 1970s could be starting to boost the bargaining power of British workers, although the squeeze on real earnings is still persisting amid higher levels of inflation. Wage growth in the three months to June was 2.1% higher than in the same period in 2016, and up from 2% in the three months to May and a recent low of 1.8% in April. However, adjusting that to account for the impact of inflation, pay was down 0.5% on the year. Negative wage growth is striking given the drop in Britain’s unemployment rate to 4.4%, a 42-year low.

Better than forecast

Retail sales show squeezed shoppers expressing caution

Britain’s consumers took a more cautious approach to shopping in July as rising prices pushed them to tighten their belts, although higher spending on food helped to keep the growth in retail sales on a par with June. Sales volumes were static at 0.3% last month after the ONS revised the figure for June down to the same level, although the result still beat analysts’ expectations for a rise of 0.2%. Only higher spending on food in supermarkets kept retail sales growing, helping to offset falling sales in every other sector tracked by the statistics authority.

Worse than forecast

House price growth slows

The latest monthly snapshot from the Royal Institution of Chartered Surveyors (Rics) showed house price growth slowed last month, albeit concealing diverging trends across the country. The headline price growth gauge slipped from +7% to +1%, signalling prices were broadly flat over the period, representing the softest reading since early 2013. However, while prices are falling in London, there have been increases in Northern Ireland, the West Midlands and the South West. RICS blamed “political uncertainty” for the slowdown and forecast flat prices and rents for at least the next year.

And another thing we’ve learned this month ... there are fewer workers from the EU’s east

Employment figures show eastern European workers are reducing in numbers in the UK following the Brexit vote, which has probably acted as a catalyst in discouraging some from coming to Britain. There was a 1.1% drop in the number of workers from eight former Soviet countries including Hungary, Poland and the Czech Republic to 997,000 in the three months to June from the same period a year ago, according to figures from the ONS. While the availability of jobs in the UK is continuing to attract workers from overseas, the ONS figures also show the rate of increase in July slowed over the past year. Between April and June 2016, and the same three months of 2017, the number of non-UK nationals from the EU working in Britain rose by 126,000 to 2.37 million. In the previous year, there had been an increase of 242,000.