Sterling slides after cabinet resignations
The resignations of the Brexit secretary, Dominic Raab, and work and pensions secretary, Esther McVey, triggered a sharp sell-off for the pound, as City traders speculated that Theresa May would fail to get her Brexit deal through parliament. That would make a no-deal Brexit more likely, with damaging consequences for the economy – reflected in the fall in the value of sterling. The pound dropped below $1.28 against the dollar while also losing value against the euro. Sterling is now worth about 14% less than it was on the eve of the EU referendum, having never recovered its peak in the last two years.
Brexit woes drag down the FTSE 100
Although a weak pound is usually positive for the FTSE 100 because many firms in the index of the biggest UK companies earn the bulk of their profits abroad, the share index dropped in value last month. Analysts said concern over Brexit was acting as a drag on equities, amid fears that a no-deal scenario could trigger an economic shock. Global financial markets have also been rattled by fears over slowing growth in the US economy and higher interest rates, as well as the impact of Donald Trump’s trade war with China. Technology stocks have sold off sharply, while there are also fears for the strength of the eurozone amid a standoff between Italy and the EU. The FTSE 100 has dropped by more than 2% in the past month.
Better than forecast
Retail price war keeps inflation steady
Inflation unexpectedly remained steady at 2.4% in October, despite expectations that the higher global oil price pushing up the cost of petrol would drive up the measure of the rising cost of living. City economists had forecast a rise to 2.5% on the consumer prices index but a price war on the high street, especially among food retailers, drove down the cost of the weekly shop. The rate of inflation still remains above the Bank of England’s 2% target set by the government.
Better than forecast
Car exports boost international trade
Car exports helped to narrow the UK’s trade deficit in September to the lowest level in five years, almost entirely eliminating the gap between overall imports and exports to zero. City economists had forecast a deficit of about £1.5bn. Official figures show that car exports to non-EU countries jumped by £1bn, while imports fell by £1.7bn, in the three months to September. Despite the weakness of the pound, which should help to boost demand for British goods, there are mounting worries for the future of UK trade as the world economy slows and Trump imposes trade barriers on China and the EU.
Worse than forecast
Business surveys show stalling growth
The risk of a disorderly Brexit and a slowdown in the world economy combined to act as a drag on business activity last month, in a disappointing start to the fourth quarter for the UK economy. The latest monthly reading on the IHS Markit/Cips purchasing managers’ index showed that the services sector – which includes retail, hotels and transport and makes up 80% of the economy – dropped to 52.2 from 53.9 on a scale where anything above 50 indicates expansion. Economists forecast that GDP growth will slow to 0.2% in the final quarter of the year from 0.6% in the third quarter.
Worse than forecast
Unemployment unexpectedly rises
Unemployment unexpectedly rose in the three months to September from the same period a year ago, edging higher to 4.1%, as slowing job creation failed to keep up with a rising number of jobseekers in Britain. Although the unemployment rate still remains among the lowest since the mid-1970s, City economists had forecast the rate to stay unchanged at 4%. Pay growth did, however, rise at the fastest rate for almost a decade, in line with expectations. Employers are growing increasingly concerned that skills shortages are holding back the economy, amid the biggest fall in the number of workers from eastern Europe since modern records began. The figures showed that the number of workers from the EU in Britain dropped by 132,000 in the past year.
Worse than forecast
Retail sales drop as high street suffers
Retail sales dropped in October, compounding the problems facing the high street as major retailers close stores across the country to shore up profits. Sales dropped by 0.5% from September, missing City economists’ forecasts for a rise of 0.2%. Annual growth in sales volumes slowed to 2.2% from 3.3% in September. Analysts said shoppers reined in their spending after a bumper summer spree, while consumers held off winter clothing purchases due to mild weather.
Worse than forecast
Public finances deteriorate after Hammond’s budget ‘gamble’
After the IFS thinktank accused Philip Hammond of taking a “gamble” on the future strength of the public finances in last month’s autumn budget, the latest figures showed a bigger than expected budget deficit in October. Public-sector net borrowing, excluding the nationalised banks, grew more than City economists’ forecast by £1.6n to £8.8bn compared with October a year ago, marking the worst October for the public finances for three years. Analysts said the latest figures suggest the chancellor may now miss his tax and spending targets set by the Office for Budget Responsibility for the current financial year, while warning that a no-deal Brexit could further damage the public finances.
Worse than forecast
Property market hits weakest level in six years
The UK’s housing market fell to the weakest level since September 2012 last month, with prices flat or falling across half of Britain according to the latest snapshot from the country’s official surveyors’ body. The latest snapshot from the Royal Institution of Chartered Surveyors said its headline house price balance fell to -10, from -2 in the month before, below all forecasts in a Reuters poll. House prices were flat or falling in six of the 11 regions covered by the survey, up from three in June. Economists said that the reading was likely to reflect buyers’ caution before the Brexit vote and a reluctance among sellers to put their properties on the market. To add to the pressure, the prospect of higher interest rates from the Bank of England is also likely to make it more expensive for prospective home owners to buy a property.
And another thing we’ve learned this month … Worst run for business investment since the financial crisis
Figures released this month revealed that business investment has declined for three consecutive quarters, marking the worst run for the level of corporate spending in the economy since the global financial crisis a decade ago. Analysts laid the blame squarely on Brexit uncertainty, which has deterred companies from spending on new machinery, technology or building works. The CBI lobby group warned that investment is “flooding out” of Britain to other EU countries, although UK business investment in recent years has always lagged behind major economic rivals. Britain has, however, fallen further behind since the Brexit vote, according to Michael Saunders, a member of the Bank of England’s rate-setting monetary policy committee. While a Brexit deal could help boost business confidence to invest, he said: “I suspect quite a lot of that is a permanent loss.”
