What Happened Over The Summer?

Author:Mr Ian Stewart

Economic news tends to attract less media coverage and less public interest over the summer. Understandably, journalists, and their audiences, have holidays on their minds. Yet economics is no respecter of seasons and data and events have continued to pile up.

With the summer holidays drawing to an end here's our two-minute take on what happened in July and August.

Summer kicked off with the massive shock of the UK's Brexit vote on 23rd June. Ten weeks on the UK looks in rather better shape than some had feared.

Brexit has not, so far, been a systemic shock. Its economic effects seem localised and there are few signs of contagion from the UK to the rest of the world. The indicators of financial stress which were flashing red in 2008-09 following Lehman's failure, or in 2010-11 at the time of the euro crisis, are at low levels.

Brexit is a political turning point whose long-term implications are unknown. In that respect it has something in common with Labour's election landslide in 1945 or Mrs Thatcher's in 1979. But Brexit is not a global economic shock.

The UK economy went into the vote with pretty decent momentum. GDP growth picked up in the second quarter, driven by strong business investment and consumer spending. The outcome of the vote caused a selloff in UK equities and the pound and led to a sharp fall in growth expectations for 2017.

But recent UK data show some signs of resilience and suggest that the UK has a decent chance of skating around a full-blown recession.

In August the Purchasing Managers survey of manufacturing reported the strongest rise in the index's history following a sharp, post-referendum decline. According to the Confederation of British Industry manufacturing export orders have risen to the highest level in two years on the back of a weak pound.

Retail sales and consumer confidence have rebounded. In an inversion of the usual pattern younger and more affluent voters are the most pessimistic on the outlook for the economy; sentiment among older voters and skilled and unskilled manual workers is much more positive. Shares in UK employment agencies have risen since early July suggesting that investors are not betting on a big downturn in the jobs market.

So what has gone right? The economy has certainly been helped by easier policy. A weaker pound, a rate cut from the Bank of England with more Quantitative Easing to come and the jettisoning of Mr Osborne's targets for cutting public borrowing have all played a...

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