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UK Economy Resurgent Despite Brexit Fears

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September 7, 2016 By: , No Comments

UK Economy Steamrolls Ahead with Strong Manufacturing Data

The shock decision to leave the European Union was met with calls by naysayers and doomsday analysts that the UK economy would collapse. Now, several months down the line we know that this is incorrect. The resilience of the UK economy is indicative of the resilience of the UK spirit in the face of adversity. Just recently, retail expenditure figures were released and indications point to a 0.9% increase for Q2 2016 – the largest jump for the UK economy since 2014. Year-on-year, the increase in household expenditure increased by 3% – and this marks the strongest rise since the global financial crisis of 2008/2009. Besides for retail expenditure, manufacturing data in the UK also performed well above expectations. The recent release of UK manufacturing data indicates that it has reached a 10-month high.

 

Caution Remains the Order of the Day when Evaluating the UK Economy

Analysts readily caution market participants when gauging the performance of the UK economy post-Brexit. Services companies are particularly important when it comes to understanding how the UK economy is performing, since they comprise 80% of the British economy. The UK Treasury Department has deferred until October when official gross domestic product (GDP) figures will be released. But not everyone remains convinced that the UK economy is barreling ahead. Citigroup and Barclays have urged market participants to be cautious when gauging recent data releases. For example, Barclays is of the opinion that the UK is heading into a ‘mild recession’. And for its part, Citigroup is of the opinion that long-term investment trends in the UK will be taking a hit, despite short-term manufacturing data.

 

Spread Bettors Weigh in on UK Economic Performance

Sentiment remains upbeat for the UK economy owing to the pace with which important changes were implemented. For example, Prime Minister David Cameron stepped down in the aftermath of the Brexit vote and his replacement, Theresa May was appointed soon thereafter. This alleviated market anxiety to a great degree and helped to generate net bullish positions on the short-term performance of the UK economy. And of course, the other major driving factor for the UK economy was the decision by Bank of England governor Mark Carney to slash interest rates to 0.25%. This had a massive stimulatory effect on the UK economy, and drove the GBP lower while increasing the velocity of money flow through the economy thereby stimulating economic growth. Prime Minister May has been slow in outlining Britain’s plans to invoke Article 50 of the Lisbon Treaty. Instead, she is focused on the daily grind and has put the Brexit issue on the backburner.

 

Future Unknown: Britain Post-Brexit

The UK manufacturing purchasing managers index (PMI) data has been strong in 2016. This is particularly true since August. It remains unknown how Prime Minister May will gain the necessary approval at home for UK/EU framework deals. But the cost of a Brexit is not limited to the EU/UK relationship alone, it also extends further to the greater global economy. The UK now has a Brexit ministry comprising 200 members, and the recent publication of a 183-page dossier by the House of Commons Library indicates the challenges that lay ahead for UK policymakers. The Brexit saga is clearly a long and grinding process that offers more opacity than clarity to economists and analysts.

 
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Brett Chatz

About Brett Chatz

Brett Chatz is a graduate of the University of South Africa, and holds a Bachelor of Commerce degree, with Economics and Strategic management as his major subjects. Nowadays Brett contributes from his vast expertise in online trading for spreadbettingreview.co.uk.

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