The effects of the EU referendum are the most widely debated topic in social and economic circles across the UK. So far, there is a lack of unanimity regarding the magnitude of this development, since conflicting reports emerge depending of which figures are being analysed. To assess the impact of the referendum thus far, we examine several individual indicators linked to the performance of the economy, based on data collected by the Office for National Statistics.

- On the whole, the UK’s economy grew by 2 per cent in 2016, mainly thanks to a resilient manufacturing sector that compensated for a weakened retail sector.

- The value of pound sterling experienced a sharp drop: three months after the referendum it was 20 per cent lower on a year-on-year basis.

- Linked to devaluation of the pound was an increase in the Consumer Prices Index, along with a rise in inflation and in the price of imports due to unfavourable currency exchange rates. Nevertheless, a PwC report affirmed that consumer spending has not been as negatively affected by the Brexit vote as it was initially predicted.

- On the brighter side, the drop in value of the pound had a positive effect on the export sector, which accounts for a significant part of the country’s overall economic activity. Barely two months after the referendum, manufacturing output growth reached its highest level since 2014, and some suggest that the fall in sterling value is the main reason behind this spike.

- A modest increase in GDP (2 per cent higher than in 2015). Short-term prospects in this respect will depend on the performance of the services sector.

- A minor increase (0.8 per cent) in the Index of Services during the quarter that followed the referendum. This is a positive figure considering the connection between this indicator, the services industry, and the overall economy.

- House prices rose by 7.2 per cent in the past 12 months, but analysts are still unsure of whether this will be a long-term trend. Market analysts predict that prices will shrink by 1 per cent during 2017 and that growth may remain at a modest 2 per cent until the end of 2018.

- The Retail Sales Index dropped by 0.4 per cent during the months following the Brexit vote, after having been stable or growing for the past 3 years. However, this cannot be exclusively attributed to weak consumer confidence, as external factors (like the weather and household income) also play a role in its performance.

- Investment activity decreased by 1 per cent during the last quarter of 2016, totalling £43.5b and reflecting the predominantly cautious approach of domestic investors. However, FDI indicators suggest the opposite trend with regards to international investment, as the value of assets went up by £65b during the quarter in which referendum took place, and the figure may increase further if the devaluation of UK currency continues. However, some predictions suggest that some investors will hold back until the UK’s status as an EU trading partner is defined.

- Labour market trends appeared positive, as employment figures are currently higher than in 2016 and are at their highest level since 1971, with 74.6 per cent of working age population being in employment. Linked to this are decreasing unemployment rates, which are currently at their lowest point since 2005.

The figures listed above point at an overall slowdown in economic growth levels, although it seems safe to affirm that it is unlikely that the economy will fall back into a recession. While there is no doubt that the EU referendum represents a turning point for the country’s economy, its repercussions are far from being clear-cut, and it may be necessary to wait for a while before making any assertions regarding the referendum’s overall impact.

Sources:

(1) https://visual.ons.gov.uk/dashboard/

(2) http://www.pwc.co.uk/services/economics-policy/insights/uk-economic-outlook.html

(3) https://www.theguardian.com/politics/2016/aug/23/manufacturing-orders-offset-exports-rise-cbi-survey-august-brexit

(4) https://www.theguardian.com/business/live/2017/jan/26/uk-gdp-growth-figures-q4-2016-brexit-live

(5) https://www.theguardian.com/business/2016/aug/22/house-prices-to-fall-1-in-2017-predicts-countrywide

(6) http://www.telegraph.co.uk/business/2016/10/06/foreign-investors-race-to-snap-up-london-commercial-property-aft/

(7) http://www.bbc.co.uk/news/business-38661443

(8) http://www.telegraph.co.uk/business/2017/01/13/britains-jobs-market-stay-strong-2017-bank-england-expert-says/