Mixed signals on the UK economy post Brexit

Initial data on the UK economy’s performance following June’s referendum result has been encouraging. In particular consumer spending has remained positive and has helped support UK economic growth. Official statistics have recorded firm retail sales during the first two months after the Brexit vote, with the value of retail sales in August 6.2% up on a year ago. 

The UK’s service sector remained firm in the first full month of data following the EU referendum. The ONS Index of Services was estimated to have increased by 2.9% in July 2016 compared with July 2015. 

Whilst the latest official data recorded a 0.4% fall in UK industrial production between July and August, this is largely due to a drop in oil & gas production as fields were shot down for summer maintenance work. Furthermore industrial production was still 0.7% up on August 2015. Manufacturing output rose 0.2%, although this follows a sharp fall in July. 

However, recent business surveys suggest that the economy may lose some momentum over the coming months. The latest British Chambers of Commerce (BCC) survey, based on more than 7,000 responses from firms in Q3 2016, shows a mixed picture with an improved short-term performance in the manufacturing sector set against a slower growth in the services sector. The survey suggests that near-term uncertainty following the vote to leave the European Union has led businesses to lower their expectations for hiring, turnover, and investment in plant, machinery, and training.