Amid all the Brexit uncertainty, a clearer picture is emerging


Among the many things that feel different in the post-referendum world, there is an unusual air of anticipation surrounding what would previously have been considered relatively underwhelming statistical releases. Today we were treated to a quartet of such publications. On the face of it they appear to point in different directions, allowing commentators on both sides of the Brexit debate to pick and choose their preferred conclusion. But in practice they help to sharpen the post-vote picture that is slowly emerging from a range of expert analysis. It’s a picture that contains three strands.

First, there has been no Brexitgeddon. Or rather, there’s nothing in the data yet available that shows any significant immediate shift in output or spending. As today’s ONS note (a very brief assessment of the official data published since 23 June) shows, we’re not as yet seeing the sharp drop in sterling feeding through into inflation. Likewise employment numbers appear unaffected, while consumer spending also remains strong. Annual house price growth of 8.3 per cent in July certainly seems to fly in the face of many Brexit warnings.

But, while some within the Remain campaign may have talked up the prospect of the economy grinding to an immediate halt in the event of a vote to Leave, such short-term effects were always unlikely to arise. Instead, the second theme emerging in the data is that the risk to the economy in the medium-term remains real.

The scale of any slowdown in future growth is a matter of considerable debate – and few economists are predicting an actual recession – but there is a clear consensus that the Brexit effect will start to build over the coming year. For instance, today’s Interim Economic Outlook from the OECD points to a halving of growth projections for 2017 (1 per cent instead of the 2 per cent predicted back in June).

More starkly, the average growth projection across the independent forecasts collated by HM Treasury is down from 2.1 per cent pre-referendum to just 0.7 per cent today. That’s equivalent to a £30 billion reduction in the size of the economy in 2017 relative to previous expectations. While that’s a little less dramatic than the figure implied by earlier post-referendum revisions, it’s worth remembering that many of these projections will now include the offsetting effects of the £170 billion stimulus package delivered by the Bank of England in August.

How accurate these revisions prove will depend to some extent on how businesses and consumers respond to each other’s moods in the period ahead of full Brexit. That’s because the third theme confirmed by today’s releases is that business pessimism post-referendum stands in clear contrast to consumer confidence.

The Bank of England’s summary of business conditions describes some improvement in business sentiment since July, but still points to lower turnover and falling investment growth over the past three months – especially in business services and commercial real estate. Employment intentions have slowed across a number of sectors, such that the overall implication is that staffing levels will be flat over the coming six months, as the chart shows.


Crucially, a slowdown in future employment is felt very differently by workers than is an immediate reduction in jobs numbers. It’s this lack of visible change in the labour market – allied with only marginal changes in inflation – which help to explain why the Bank agents continue to encounter confident consumers. Retail sales continue to grow and consumer credit demand is steady, with no evidence of any wobble – even in the immediate referendum aftermath.

There is some indication of a slowdown in big ticket consumption however, with reports of consumers exercising post-referendum caution in relation to buying new cars and increasing levels of ‘staycationing’. There’s also some evidence of a slowdown in residential housing, though that’s only apparent in London and its surrounding areas for the moment.

This may just reflect a wait-and-see approach which will dissipate as consumers conclude that not much has changed since 23 June. But maybe it marks the first step on the journey from chillaxing to concern among consumers. Longer-term of course, Britain’s prospects rest on the details of the Brexit deal negotiated by Theresa May and her colleagues. As with so much else at the moment, that remains hugely uncertain and we are no nearer to knowing what the post-Brexit economy will look like. But in the interim, the direction of convergence in attitudes between businesses and their customers will be a key determinant of just how the economy performs in the medium-term. As such, we can expect the search for clues in the data to continue for some time yet.