Pound slides to reach 10-month low
Renewed Brexit turmoil for the government and weaker readings from the economy have pushed the pound to its lowest levels for 10 months, as City traders bet on the increasing likelihood of the UK leaving the EU without a deal. Sterling dropped after Boris Johnson and David Davis quit the government over the Brexit vision outlined by Theresa May at Chequers. Economists also said weaker-than-expected economic data over the course of the past month could deter the Bank of England from raising interest rates in August. Sterling remains more than 10% below its value on the eve of the EU referendum.
FTSE 100 buoyed by weaker pound
The FTSE 100 has experienced a rollercoaster month, buffeted by the prospect of an all-out trade war between the US and the rest of the world as Donald Trump slapped import tariffs on China. Although the president raised the prospect of a US-UK trade deal should May stage a hard Brexit, the US is still imposing higher taxes on EU steel and aluminium, including metal made in the UK. Despite the concerns over trade, the FTSE has found support from the weak pound, because many of the large firms in the index derive much of their profit from overseas.
Better than expected
Inflation unexpectedly stays at one-year low
UK inflation unexpectedly remained at 2.4% in June, despite petrol prices rising to the highest level in four years, heaping pressure on the Bank of England to delay an interest rate rise in August. The Office for National Statistics said the falling price of clothing in the summer sales was one of the main factors offsetting the rise in petrol. Computer game prices also fell, while air fares rose in June, but less than they did a year ago.
Worse than expected
Trump tariffs threaten British metal exports
The UK’s trade deficit – the gap between what the country imports and sells overseas – narrowed slightly overall in May from the previous month, despite weak growth in exports for manufactured products. The trade in goods deficit remained unchanged at £12.4bn – despite economists’ forecasts for a smaller gap – due to weaker sales of base metals and electrical items, which economists said could be down to the tariffs being imposed by Trump on EU steel and aluminium. Official data shows the UK imported 55% of all goods from the EU and exported 51% to countries outside the bloc in the year to May.
Better than expected
Business activity shows stronger growth ahead
There were stronger readings for the British economy from closely watched surveys of business activity, showing a better-than-forecast rebound for the UK’s services industry, which accounts for about 80% of GDP. The IHS Markit/Cips service sector purchasing managers’ index rose from 54.0 in May to 55.1 in June, with reports of a robust and accelerated pick-up in activity. Any reading above 50 indicates that the sector is expanding. Taken together with stronger readings for the construction and manufacturing industries, economists said the barometers of growth monitored by the Bank of England pointed towards GDP growth of 0.4% in the second quarter.
Meets expectations
Wage growth falls despite record employment levels
The rate of pay growth for British workers dropped to the lowest level in six months in the three months to May, despite record numbers of people in work across the country. The ONS said average weekly earnings rose by 2.5% on the year in the three months to May, down from the previous three months when they grew by 2.6%. Pay growth excluding bonuses slowed to 2.7%. Although in line with expectations, observers expressed disappointment that the lowest level of unemployment since May 1975 was failing to lift the bargaining power of workers to demand higher pay. The jobless rate was unchanged at 4.2%.
Worse than expected
World Cup and hot weather hurt retail sales
The World Cup and the summer heatwave kept British shoppers away from the high street last month, fuelling a surprise drop in consumer spending, despite helping to lift sales of food, drink and barbecues across the country. Clothing stores and other non-food retailers suffered from fewer shoppers amid the hot weather and England playing at the tournament in Russia. The volume of goods sold across the whole of the retail industry dropped by 0.5% last month compared with May, missing City expectations for a rise of 0.2%.
Worse than expected
Weak UK growth puts the squeeze on Hammond
Weak economic growth and sluggish tax revenues prevented the government from reducing its spending deficit in June by as much as anticipated. Coming after May promised to increase spending on the NHS by £20bn over the next few years, the latest figures are likely to frustrate the chancellor, Philip Hammond, as he considers ways to raise taxes in the autumn budget to pay for the pledge. The deficit – measuring the gap between public spending and revenue – fell by £800m from the figure in June a year ago to stand at £5.4bn last month, against economists’ forecasts for a deficit of £5bn.
Better than expected
UK housing market remains in the doldrums
British house prices remained flat last month, with activity indicators suggesting the subdued picture would persist for longer still. According to the latest snapshot from the Royal Institution of Chartered Surveyors, more properties are being put up for sale, although the improvement could be short-lived. The Rics house price index, measuring the balance of surveyors expecting price rises against those forecasting a fall, rose to +2 in June from -2 a month ago, beating economists’ expectations. Official figures from the ONS showed house price growth slowing to the weakest rate in five years, dragged down by falling prices in London.
And another thing we’ve learned this month ... lower immigration could add to NHS debt headache
Ultra long-term forecasts published this month by the Office for Budget Responsibility, the government’s tax and spending watchdog, suggest falling levels of immigration to the UK after Brexit could add to pressures facing the public purse from an ageing population. After May pledged an additional £20bn for the NHS, the economic forecaster said government debt could rise to 280% of GDP due to a more rapidly ageing society than previously forecast by 2067. Migrants usually come for work and tend to be younger, which could have supported greater growth in the economy to help pay for the rise in spending. The warning came after official data from the ONS showed net migration from the EU fell to its lowest level for four years in 2017.
