Sterling rallies after PM’s defeat

The pound soared after Theresa May suffered the biggest parliamentary defeat ever over her Brexit plan, as currency traders in the City bet that the chances of a hard Brext in less than 70 days’ time had significantly diminished. Sterling has risen to the highest level against the euro in more than a year, while also gaining against the dollar. At its current level just above $1.30, the pound is still worth 12% less against the dollar than it was before the EU referendum in June 2016.

Equities recover on trade hopes

Stock markets around the world have rallied over the past month after the worst December for Wall Street since 1931. The FTSE 100 has staged a strong recovery along with other major global indices as hopes grow for a resolution in the US-China dispute over trade, which has been acting as a handbrake on the global economy. The UK’s major listed companies have gained by more than 6% in a month, despite lingering concerns over Brexit. Analysts, however, warn that potential reignition of the trade war between Washington and Beijing could trigger fresh losses.

Meets forecast

Falling petrol prices drag down inflation

UK inflation declined to the lowest level in almost two years in December after a drop in petrol prices. Offering respite to hard-pressed consumers at Christmas, the slide in inflation could help rebuild household finances ahead of Brexit, while also alleviating pressure on the Bank of England to raise interest rates. The consumer price index fell from 2.3% in November to 2.1% in December, which is the lowest level since January 2017. The drop comes after consumers were hit by rising prices after the 2016 Brexit vote, when the fall in the value of the pound pushed up the cost of goods imported from abroad.

Worse than forecast

Trade fears grow amid global slowdown

Britain’s trade in goods deficit – the gap between imports and exports – unexpectedly widened in November to £12bn from £11.9bn in October, as the weak pound failed to lift export volumes abroad. Fears are growing over the levels of global trade, given the standoff between the US and China, while the slowdown in the Chinese economy has lowered demand for UK manufactured goods. The car industry, also struggling with a new set of rules around vehicle emissions, has been particularly hard hit, dragging UK economic growth close to a standstill.

Better than forecast

Brexit stockpiling boosts business activity

An increase in firms stockpiling before a potential no-deal Brexit helped UK factory output grow at the fastest pace in six months during December, amid growing fears of border delays. The latest snapshot from IHS Markit and the Chartered Institute of Procurement & Supply suggests Brexit could perversely benefit the economy in the short-term by prompting firms to raise activity in preparation for no deal. Despite the upswing, analysts warned that the UK’s dominant services sector remained close to flatlining. Economists said the surveys of business activity point to growth of about 0.1% in the fourth quarter of 2018, down from a rate of 0.6% in the third quarter.

Better than forecast

Wage growth and employment surges

The average wages of British workers rose at the fastest annual rate since the financial crisis in the three months to November as unemployment fell to the lowest rate since the mid-1970s. Average weekly earnings, excluding bonuses, increased by 3.3% in the biggest rise since 2008. Meanwhile, the number of people in work also rose after an increase of 141,000 people entering employment to a record high of 32.54 million in the three months to November. Despite the good news from the jobs market, some economists warned that employers may have turned to hiring contractors rather than full-time staff amid uncertainty over Brexit, with self-employment accounting for two-thirds of the rise in new jobs.

Worse than forecast

Christmas sales slump after Black Friday

UK consumers reined in their spending in December over the key Christmas shopping period after splashing out in November on Black Friday promotions. Confirming a tough festive season on the high street, the quantity of goods bought last month fell by 0.9% compared with November. Sales had surged in the previous month as shoppers pulled forward their Christmas spending to take advantage of Black Friday deals.

Worse than forecast

EU contribution pushes up government borrowing

Britain’s budget deficit, the gap between spending and income from taxes, was higher than expected in December, as the government spent more than it received. Although the UK’s finances are steadily improving on an annual basis, the performance over the last month was worse than the City expected. Borrowing was about £3bn, versus an estimate of £1.9bn. The Office for National Statistics said the UK’s contribution to the EU budget was £1.5bn higher than in December 2017; transfers to Brussels can fluctuate at the end of each year.

Worse than forecast

Brexit threat drags down house prices

UK house prices fell at the fastest rate in six years in December, while the outlook for sales was the weakest in two decades, according to the latest snapshot from the Royal Institution of Chartered Surveyors. Sales expectations for the next three months were the lowest since the survey began in 1999, with a net balance of -28% – the difference between the number of respondents anticipating increases and the number expecting decreases. Analysts blamed Brexit uncertainty for the malaise.

And another thing we’ve learned this month … Brake on car sales threatens economic growth

UK car sales fell at the fastest rate since the world plunged into recession a decade ago, according to data from the Society of Motor Manufacturers and Traders. While consumer demand has waned as the Brexit vote dents households’ finances and knocks confidence in making big purchases, several other problems have plagued the car industry. Factories struggled to adapt to new emissions tests brought in late last year after the VW emissions scandal, while sales in China fell for the first time in almost 30 years as the Chinese economy slows. UK growth has slowed as a consequence, while Germany slipped into recession in the second half of 2018 in a sign of the wider malaise. Brexit could make matters worse, with warnings that disruption to supply chains would come just as global industry suffers a slowdown.