Economic Update: October 2016

The UK economy continues to give positive signs, but much like last month there remains little in the way of hard economic data on the impact of the EU-referendum.

The economy continues to give positive signs post-referendum

Confidence indicators look encouraging at the start of October. The Manufacturing Purchasing Managers Index, an important indicator of output and confidence in the sector, increased for a second month in a row in September 2016 to its highest level since mid-2014. The main factor cited by Markit to explain the upswing was the recent depreciation of Sterling, which remains below pre-referendum levels. The low value of the pound may provide a boost to manufacturing exporters as their goods become cheaper abroad.

Broadly speaking the small amount of post-referendum data available from Office for National Statistics have not shown any major changes; retail sales increased again from July to August, inflation remained low and the labour market continued on its current positive trend.

However the outlook remains uncertain

The Bank of England’s Agents’ summary of business conditions found that although the annual rate of activity growth remained positive it slowed in the third quarter of 2016 as uncertainty rose following the EU referendum. Falling investment intentions were also highlighted. How this filters through to the economy will become clearer when the first post-referendum business investment data are released at the end of November.

Forecasters continue to be less confident about the UK’s prospects for next year. Forecasts for GDP growth in 2017 have dropped from 2.1% before the referendum to 0.7% in September 2016 according to the Treasury survey of independent forecasts.

Brexit in 2019?

Over the weekend the Prime Minister has stated that she intends to trigger Article 50 in the first quarter of 2017. This is the first formal step towards the UK’s withdrawal from the EU – which could result in the UK leaving by the summer of 2019. Following the statement the value of the pound fell to $1.28 at the 3 October market close, its lowest level against the dollar since 1985.

This article was originally published in the October edition of the Library’s Economic Indicators paper. The monthly publication provides a snapshot of key economic data covering: growth, labour market, finance, borrowing, trade, exchange rates, business, retail and housing. Individual pages are updated through the month as new data come out.

Picture Credit: Virgin Voyage | Land Rover Celebrates Production of First New Discovery Sport by Land Rover MENA; Creative Commons Attribution 2.0 Generic (CC by 2.0)