August 26, 2016 / 10:41 AM / 2 years ago

Factbox - UK economy suffers little immediate Brexit hit, tests to come

LONDON (Reuters) - Two months after Britain decided to leave the European Union, consumers seem to have taken the result in their stride but there are some signs that the challenge for the economy has barely begun.

Below is a summary of various measures of the economy’s performance since the country voted to leave the EU on June 23:

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Shoppers shrugged off the Brexit shock in July, according to official data. Retail sales jumped by much more than expected as warm weather boosted summer clothing sales and overseas buyers took advantage of a cheaper pound.

Major retailers Next and John Lewis say they have not been affected so far by the referendum result. The British Retail Consortium also said spending in shops bounced in July, while grocery sales edged up in the 12 weeks to Aug. 14 and new car registrations were flat in July.

Consumers took on more debt in July, with net credit card lending jumping 20 percent compared to a year ago. But the number of mortgages approved by British banks fell to its lowest in a year that same month.

The impact from Brexit on consumer spending is expected to take time to appear. The Bank of England has more than halved its forecasts for household spending over the next two years in light of the vote to leave the EU, one of the reasons it cut interest rates and announced more stimulus measures this month.

British consumer morale saw its sharpest drop in more than 26 years and house prices also broadly fell following the vote. But one survey showed households in August recovered from a loss of confidence about their finances.


For now, the labour market has shown little sign of a Brexit hit, with the number of people claiming unemployment benefit in Britain unexpectedly falling in July and only a small fall in the number of job vacancies.

But Britain’s decision to leave the EU, and the long period of uncertainty that will ensue, could curb business investment and result in some companies, in particular in financial services, moving headquarters or jobs elsewhere in Europe.

Lloyds Banking Group, said in July it would axe a further 3,000 jobs and close an additional 200 branches to cushion against a more testing economic environment caused by Britain’s vote to quit the EU.

By contrast, online retailer Amazon said last week it would create 1,500 new jobs in 2017 in Britain.A slower economy could cap wage growth, which together with higher inflation, would eat into consumers’ spending power.


Price pressures in factories - which feed through into consumer prices - jumped in July, reflecting the post-Brexit slump in the pound.

Import prices rose at their fastest rate since late 2011 and overall input prices paid by manufacturers saw their biggest annual rise in three years.

Consumer price inflation, which has been below the BoE’s 2 percent target for two-and-a-half years, edged up to 0.6 percent in July. The BoE has raised its inflation forecasts for 2018 and 2019 further above its 2 percent target.


Business activity surveys published earlier this month suggested the economy contracted at its fastest rate since the financial crisis in July.

The BoE cited the PMI surveys as it launched its stimulus programme. However, some economists say the surveys probably reflected the political chaos in Britain in early July which has eased after Theresa May took over as prime minister.

A first survey of the manufacturing sector in August published on Tuesday showed the strongest export orders in two years, helped by the Brexit-related fall in sterling, but demand at home was weak.

Business investment will be a key indicator of how industries cope with the fallout from the referendum. The latest data showed business investment increased by 0.5 percent running up to the referendum, confounding expectations in a Reuters poll for a fall and reversing a decrease in the first three months of the year.

Additional reporting by Andy Bruce; editing by William Schomberg/Jeremy Gaunt

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