Thursday, 21 July 2016

U.K. Economic Surveys Paint Mixed Picture Post Brexit

In World Economy News 21/07/2016

British household confidence took a knock following voters’ decision to leave the European Union but businesses were more circumspect, according to surveys that offer an early glimpse of the impact on sentiment by last month’s surprise referendum result.
A gauge of household finances published Wednesday by data firm IHS Markit Ltd. worsened in July. Separately, the Bank of England said its network of regional agents reported a marked increase in perceptions of uncertainty among businesses, with some saying they were reconsidering investment and hiring plans for the year ahead. Exporters, however, welcomed the falling pound, which makes British goods and services more competitive on world markets.
Yet there were hopeful signs. Firms said they don’t intend to cut spending and investment in the near-term, although they said they may reconsider their longer-term hiring and investment plans.
The surveys offer potential clues as to the health of the U.K. economy, but firm data for the post-referendum period won’t be available until the fall. Britons voted 52% to 48% to leave the EU in a vote June 23, a decision economists say will likely weigh on the economy this year and next. Yet they are divided over how large any slowdown will be, or how durable.
Separately, official data Wednesday showed the British labor market continued to strengthen in the run-up to the referendum. The Office for National Statistics said the number of people out of work in the U.K. fell by 54,000 between March and May, pushing the average jobless rate over the three months to 4.9%, from 5% the previous three months. The unemployment rate was last lower in 2005.
Treasury chief Philip Hammond said the data are proof that “the fundamentals of the British economy are strong.”
Mr. Hammond was appointed last week after Theresa May became leader of the Conservative Party and the country’s new prime minister. He said on Tuesday the government will set out fresh tax and spending plans in a regular financial statement toward the end of the year. He has already said the government will abandon its pre-referendum goal of eliminating the U.K.’s budget deficit by 2020.
The Bank of England, meanwhile, has signaled it will cut its benchmark interest rate from 0.5% in August as a part of a package of stimulus measures to support the economy following the Brexit vote.
IHS Markit said Wednesday a monthly gauge of households’ financial health deteriorated in July immediately after the vote. Consumers were the gloomiest about the outlook for their own personal finances for two and half a years, Markit said, reflecting concerns over jobs and the prospect of rising prices.
In a regular monthly report, the BOE said businesses were “shocked” by the referendum result and were pausing to take stock. Many firms told the BOE’s representatives that they intend to conduct strategic reviews of their operations in light of the result.
The International Monetary Fund on Tuesday trimmed its forecasts for the U.K. and the global economy following the Brexit vote. The IMF cut its growth forecast for Britain to 1.7% this year from 1.9% previously, and its 2017 forecast to 1.3% from 2.2%. Others expect a much more pronounced slowdown: Economists at UBS Group AG predict growth of 1.3% in 2016 and just 0.5% in 2017.
The FTSE 100 index of U.K.-listed stocks has gained around 10% since the day after the vote, while the more domestically-focused FTSE 250 index has risen 6%. Sterling, however, is down 11% against the dollar.

Source: Dow Jones