Section:GDN 1N PaGe:28 Edition Date:190731 Edition:01 Zone: Sent at 30/7/2019 19:27 cYanmaGentaYellowb
- The Guardian Wednesday 31 July 2019
28Source: Thomson Reuters1.41.31.21.11.0Sterling markets- $v£ • €v£
23 Jun 2016Jun 2017 Jun 2018 Jun 2019Source: Thomson ReutersFTSE 100
Price Index7,5007,0006,5006,000
23 Jun 2016Jun 2017 Jun 2018 Jun 20198,000Source: ONSTrade balance
£bn, goods and services, seasonally adjusted-2-4-6
Jun 2016 Jun 2017 Jun 20180Source: ONSConsumer prices index
% change3.02.01.0Jun 2016 Jun 2017 Jun 2018 Jun 2019056
54
52
50
48Activity levels
All sector PMI, output index. Values above 50
indicate growth, below 50 contraction46Source: IHS MarkitJun 2016 Jun 2017 Jun 2018 Jun 20191
Sterling slides over
no-deal Brexit risk
The pound has sold off
against the euro and US
dollar in the past month,
investors ramping up sell
orders as the rhetoric has stepped
up over a no-deal Brexit. Sterling
has fallen by more than 4% against
the dollar to trade below $1.22, and
by almost 3% against the euro, to
about €1.09. Economists say the
price of importing goods to Britain
will probably rise, raising infl ation.
The US bank Morgan Stanley says
the pound may fall to $1-$1.10 if the
UK exits without a deal. That could
risk breaching the record low of
$1.04 reached briefl y in 1985.2
Stocks rise as US-China
trade war cools
An easing in tensions
between the US and
China over trade helped
global equities markets
recover sharply over the past month,
driving the FTSE 100 index of top
UK fi rms to the highest levels this
year. Expectations of central banks
cutting interest rates ha ve also
fed a sense of optimism in share-
dealing rooms. The weaker pound
has pushed the FTSE 100 higher, as
many fi rms in the blue-chip index
make the bulk of their earnings in
foreign currency. The FTSE 100 has
risen by about 200 points in the past
month to trade at around 7,670.3
Infl ation stays at Bank
of England target
In June, for a second
month running, the
infl ation rate was on
target, helping some
British households rebuild their
fi nances. The Offi ce for National
Statistics said that in June the
consumer prices index stayed at
2% , un altered from the rate in May
and in line with City expectations.
Lack of infl ationary pressure above
the Bank’s 2% target will probably
provide further reason to keep
interest rates on hold, which the
Bank has done amid steady infl ation
and heightened uncertainty.
Meets forecast4
End of stockpiling rush
narrows trade defi cit
Britain’s trade defi cit
with the rest of the
world – the calculation
that measures the
gap between a country’s imports
and exports – narrowed in May as
companies reined in their eff orts
to stockpile goods. Firms had
been rushing to place orders with
overseas suppliers before the
original Brexit deadline of 29 March
this year. This had pushed the UK
trade defi cit to the highest level on
record as imports surged. However,
with many fi rms now having built
up signifi cant stockpiles of their
supplies, imports have slowed.
Britain’s trade-in-goods defi cit
narrowed to £11.5bn in May , down
from £12.7bn a month earlier. City
economists had forecast a goods
trade defi cit of £12.6bn.
Better than forecast5
Business activity slumps
on no-deal Brexit fears
The growing no-deal risk
caused business activity
to stall last month,
raising the spectre of
the fi rst drop in quarterly GDP in
seven years , in the three months to
June. Activity in the construction
and manufacturing sectors slid into
reverse , and the services sector
was close to stalling. Weaker global
economic growth contributed as
the services industry index fell
from 51.0 in May to 50.2 , just above
the 50.0 mark separating growth
from contraction. GDP fi gures for
the second quarter are expected on
9 August. Worse than forecastConsumers keep UK afl oat
as no-deal threat takes hold
Richard Partington
Economics correspondentThe British consumer is supporting
the country’s economic performance
but key sectors are showing signs of
strain as Boris Johnson threatens to
take the UK out of the European Union
without a deal, according to a Guard-
ian analysis.
In a sign of the mounting stress
facing the economy, the pound has
slumped to the lowest level against
the US dollar for 28 months amid ris-
ing fears that Johnson may pursue a
no-deal Brexit.
The slide in sterling comes as
economic growth dips to stalling
point. The National Institute of Eco-
nomic and Social Research, a leading
thinktank, said this month there is a
one-in-four chance the UK has already
tipped into recession even before thethreat of a disorderly departure on
31 October. Global economic growth
is also slowing against the backdrop
of the US-China trade war, with the
impact spilling back on Britain.
However, economic growth has
been supported by consumers contin-
uing to sp lash out, despite a slowdown
in activity among businesses as they
put spending decisions on hold before
Brexit.
David Blanchfl ower, a former mem-
ber of the Bank of England’s monetary
policy committee, said Johnson’s no-
deal Brexit stance represented the
biggest threat to a fragile economy.
“Company bosses continue to warn
Johnson against pursuing a no-deal
Brexit, and he ought to listen. Such a
scenario is the biggest downside risk to
the UK economy and would be a disas-
ter for living standards,” he said.
To gauge the impact of Brexit on a
monthly basis, the Guardian monitorseight economic indicators , along with
the value of the pound and the perfor-
mance of the FTSE 100.
Economists made forecasts for
seven of those barometers before
their release, and in four cases the out-
come was better than expected. One
met its forecast while two fell short of
expectations.
Presented with the challenge of
Brexit alongside the global slowdown,
the Bank will update its growth fore-
casts tomorrow with its quarterly
infl ation report and a press conference
featuring its governor, Mark Carney.
Threadneedle Street is expected to
keep interest rates at 0.75% until there
is greater clarity over Brexit, although
economists widely believe that the UK
crashing out of the EU without a deal
would trigger an emergency rate cut.
Despite mounting concerns over the
path ahead, the latest economic data
revealed a mixed picture for Britain.Among the bright spots was infl a-
tion remaining at the Bank’s target
rate of 2% for June, and wage growth
accelerating at the fastest annual rate
since 2008, helping households to
strengthen their fi nances.
Consumer spending increased
unexpectedly by 1% on the month,
despite a forecast for a 0.3% con-
traction among City economists, in
a sign that Britons tuned out of the
political saga at Westminster. The
under-pressure high street also put
in a strong performance as retail sales
rose by 3.8% on the year, also beating
forecasts.
However, there were signs of storm
clouds gathering. Business surveys
revealed a slump in company activity
as Brexit uncertainty bites, with boththe building and manufacturing sec-
tors falling into contraction.
The latest snapshot from IHS Markit
and the Chartered Institute of Procure-
ment and Supply showed the services
sector barely recorded growth in June,
in a sign GDP probably fell in the sec-
ond quarter.
The services sector, which ranges
from banking to restaurants and
hotels, accounts for about 80% of gross
domestic product.
Economists warned that activity
would probably continue shrinking
into the autumn because Johnson’s
ramping up of the no-deal rhetoric
could lead companies to put invest-
ment decisions on hold.
Andrew Sentance, a former member
of the interest rate-setting monetary
policy committee at the Bank , said
growth was slowing as Brexit loomed.
Offi cial fi gures for the second quar-
ter are expected to be published next
week, with some economists predict-
ing a contraction of 0.2%. Sentance
warned that the third quarter could
be just as bad.
“The current quarter is likely to be
no better while there is so much talk
of a no-deal Brexit ; 2019 looks set to
be disappointing for the UK economy,”
he said.▲ The services sector was static, in a
sign second-quarter GDP probably fellBusiness
Brexit watchSterling fell
sharply against
the US dollarThe Bank of England may
keep interest rates on hold
given the steady infl ationsupplies, imports have slowed.
Britain’s trade-in-goods defi cit
narrowed to £11.5bn in May,down
from £12.7bn a month earlier. City
economists had forecast a goods
trade defi cit of £12.6bn.
Better than forecast9 August. Worse than forecastFears of a no-deal Brexit
have sent construction
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