Brexit Briefing: UK Consumers Continue to Drive Economic Growth
- UK consumer spending continues to be robust in the wake of June’s Brexit referendum.
- But there are still warning signs that consumer spending will be hit by headwinds next year.
- The UK’s post-Brexit EU trade deal could take a decade to complete and still fail, warns official.
Wednesday’s UK jobs data suggested that British employers are finally slowing their hiring in the wake of the Brexit vote. Yet UK consumer spending has so far been robust since June’s Brexit referendum and continues to drive economic growth, and with it expectations that the Bank of England may, next year at least, begin to imagine raising UK interest rates.
Retail sales growth slowed last month from October's 14-year high, official data showed Thursday, but sales volumes in November were still 5.9% higher than a year ago, and were slightly better than analysts had expected.
This gave the British Pound a boost against the Euro although not the Dollar, which remained in demand after the US Federal Reserve’s Wednesday rate increase that boosted it against both Sterling and the Euro.
But plenty of economists are still warning that consumer spending will hit by headwinds next year as rising inflation, due to the weaker Pound since the Brexit vote, puts pressure on household budgets. There will also be heightened uncertainty in 2017 as formal Brexit procedures get under way, which could impact growth and limit the potential for rate rises.
But how much of this can we take as read? The Bank of England, for example, as it today voted unanimously to keep interest rates unchanged, is now worried that the Pound’s 6% rally over the past month could soften the expected surge in inflation next year. This would also potentially reduce the chances of a rate rise.
What we can be more certain about is that the Brexit negotiations are likely to be complex and fraught. And that will weigh on the Pound unless there are clearer signs of a potential so-called “soft Brexit”rather than a “hard Brexit”. Today, the BBC reported that Britain's ambassador to the EU, Sir Ivan Rogers, has privately told the government that a post-Brexit UK-EU trade deal might take 10 years to finalize and still fail.
The government, meanwhile, is still insisting on playing its cards very close to its chest. Brexit Secretary David Davis told MPs yesterday that the government's plan for Brexit negotiations will not be published until February at the earliest, and there was a lot of research and policy work to be done before it was ready.
--- Written by Oliver Morrison, Analyst
To contact Oliver, email him at firstname.lastname@example.org
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