The UK economic outlook has changed pronouncedly following the UK’s vote to exit the EU. The official data pertaining to economic activity’s trends after the Brexit are not available yet; however, business surveys taken place following the vote have implied that there has been a sharp deceleration of activity.
Noticeable declines have been seen in PMIs for July that recorded the largest monthly drop due to their weakest headline readings since 2009. Other sentiment measures for businesses and consumers, and surveys of investment intentions have also alleviated due to the increased uncertainty, said Lloyds Bank.
The first estimate of second quarter GDP growth implied strong momentum, indicating an above trend 0.6 percent quarter-on-quarter pace of growth.
However, the monthly activity data in the quarter indicates towards a solid beginning and a subsequent easing. Furthermore, the heightened uncertainty metrics implies the overall rate of second quarter is unlikely to sustain and if past relationships with survey indicators seen since the referendum hold, a noticeable deceleration of growth is foreseen, according to Lloyds Bank.
But, significant uncertainty continues to be there regarding the scale of the downturn. Private investment is expected to majorly weigh in on growth where increased uncertainty regarding the trading arrangements with the EU is expected to affect capital outlays. Household expenditure is expected to be more resilient. However, confidence readings have already dropped there too.
Possibility in the rise of unemployment and a drag on real incomes from higher inflation rates indicate towards marked retrenchment; however, the initial hard data for retail sales in the post-referendum period are still expected to be strong, added Lloyds Bank.
“One offset to increased uncertainty is likely from an easing of fiscal austerity, with the government’s plans from the March 2016 Budget already abandoned and a fiscal ‘reset’ trailed for the Autumn Statement,” stated Lloyds Bank.
Moreover, the GBP’s 12 percent decline on a trade-weighted basis will also help stimulating net exports and rebalance the economy. However, the benefit might be smaller than over earlier episodes of currency weakness, noted Lloyds Bank.
