Britain’s decision to leave the European Union came as a shock, causing economic uncertainty in both the UK and EU. However, the post-Brexit economic data showed no clear signs of a sharp economic slowdown widely predicted by analysts, while some results appeared even more positive than expected. The Office for National Statistics reported UK retail sales rose 6.2% year-over-year in August, following the preceding month’s upwardly revised 6.3% gain and remaining resilient as British consumers ignored the Brexit vote. Furthermore, the ONS revealed that Britain’s trade deficit narrowed by 1.1 billion pounds to 4.5 billion pounds in July, compared to June’s upwardly revised reading of 5.6 billion pounds; however, the drop was mainly driven by the weaker Sterling as it supported UK exports, making them rise 1.9% in the reported month.
Moreover, the Markit/CIPS Services PMI for the UK advanced to 52.9 in August from the previous month’s 47.6, as well as the UK Manufacturing PMI jumped to 53.3 in the same month after declining to 48.3 points in July, showing signs of recovery from the post-Brexit shock. Nevertheless, the weak PMI data for July, together with the Consumer Confidence that came in at -12 in July and other disappointing economic indicators released after the referendum, forced the Bank of England to cut its interest rates for the first time since 2009 at its August meeting. Back then, the Bank’s policymakers voted anonymously to maintain the Central bank’s benchmark interest rate at its new, historically low level of 0.25%. Furthermore, they voted 9-0 to leave the Central bank’s bond-buying program target level at 435 billion pounds as well as to stick to its new plan to buy up to 10 billion pounds of high-grade corporate bonds.
Back in August, the Bank revised down its Q3 GDP growth forecast to 0.1%, which was afterward revised up to 0.3% at its September meeting. The BoE’s policymakers also signaled that they were likely to vote for further cuts if necessary. The ultimate impact of Britain’s withdrawal from the EU remains unclear as economic indicators suggest a mixed picture, with monthly inflation staying at 0.6% in August and consumer confidence coming in at -7 in the same month.