LONDON (Reuters) - Britain’s economy is sending mixed signals about its readiness for Brexit, just as British Prime Minister Theresa May is getting ready to launch the process of pulling the country out of the European Union.
Overall economic growth was resilient in 2016, confounding forecasts of a quick and painful hit from June’s Brexit vote.
There have been recent signs that exporters are benefitting from the pound’s fall and a pickup in the world economy.
But consumers, typically the main drivers of British growth, appear to be turning more cautious.
Following is a summary of the most important measures of the British economy along with graphics.
Britain’s economy grew by 1.8 percent in 2016, second only to Germany among the Group of Seven big rich nations. In quarterly terms, growth sped up at the end of the year, prompting the Bank of England to raise its forecast for the first three months of 2017. Most of the BoE’s policymakers still expect a slowdown this year but they showed “differing degrees of confidence” about that forecast at their meeting this week. The central bank and the government’s official budget forecasters expect growth of 2.0 percent this year. A Reuters poll of economists saw weaker growth of 1.6 percent.
GRAPHIC - UK growth accelerated into the end of 2016:
Inflation has begun to rise quickly in response to the sharp fall in the value of the pound since the Brexit vote and the rise in global oil prices. It stood at 1.8 percent in January and the BoE predicts it will peak at 2.8 percent in the first half of next year. Many private economists say it is heading above 3 percent.
GRAPHIC - UK inflation starts to climb
British workers have seen their pay eaten away by rising prices for many of the years following the financial crisis and a brief respite, caused by inflation’s fall to zero in 2015, looks set to end soon. While inflation is on the rise, wage growth is slowing, according to official data. Pay growth, adjusted for inflation the lowest since October 2014. The BoE expects pay will rise 3 percent in 2017, up from the most recent reading of 2.2 percent, but its forecasts have often proven overly optimistic.
GRAPHIC - UK wage growth ebbs away as inflation rises
Britain’s shoppers proved nearly all the forecasters wrong by carrying on spending freely after the Brexit vote, helping the economy to withstand the initial shock of the result. But that might be changing now. Retail sales fell in month-on-month terms in November, December and January - the first stretch of three consecutive declines since 2009.
However, consumer confidence has remained robust and house prices continue to grow, adding to the mixed picture.
GRAPHIC - UK retail sales suffer back-to-back falls
Exporters are getting a boost from sterling’s fall, as well as a recovery in markets in Europe and the United States. Net trade made a rare positive contribution to economic growth in late 2016. And in the three months to January, volumes of goods exports showed their biggest increase in a decade. But there are big questions about what happens after Brexit. Britain is prioritising migration controls over access to the EU’s single market which accounts for about half of Britain’s exports.
GRAPHIC - UK goods exports volumes surge
Writing by William Schomberg, graphics by Jiachuan Wu and Andy Bruce Editing by Jeremy Gaunt