UK ECONOMY 2016 – SUMMARY FACTS AND FIGURES
The UK was the best-performing large and advanced economy in 2016. Official figures for the fourth quarter showed economic growth of 0.6 per cent in the final quarter and 2 per cent for 2016 as a whole.
- 2.2 per cent Growth of the UK economy during the past year, in real terms. The UK secured its seventh consecutive year of growth since the recession. In the final quarter, seasonally adjusted retail sales volumes were up 1.4 per cent and, even after the December dip, sales volumes that month were 4.9 per cent higher than a year earlier.
- 46 per cent share of UK exports between October 2015 and September 2016 that went to the EU.
- 14 per cent Depreciation of sterling during the past year against a trade-weighted basket of currencies. Sterling suffered two sharp devaluations this year — immediately after the EU referendum in June and in October as statements made at the Conservative party conference stoked fears of a “hard Brexit”. Sterling has rallied since then and is now 4.8 per cent above its mid-October low. Going forward, weak sterling and rising inflation will erode real wages
- 1.2 per cent growth in consumer prices (inflation) during the past year.
- The UK is running an enormous current account deficit, forecast by the Office for Budget Responsibility at 5.7 per cent of gross domestic product in 2016.
Update 16 Dec: What has happened in the UK since the referendum and what the future holds
Uk growth is not showing signs of faltering in terms of GDP – we are doing around the same as we did last year
Sterling has dropped to $1.23 since the referendum meaning that the UK worth in the international community has dropped and the value of UK assets has also dropped
This has helped companies in the FTSE 100 that get about 75% of their profits globally and convert back into sterling
Japanese financial institutions have told the UK government they will begin moving some functions from London within six months unless they can get clarity on the UK’s future relationship with the EU, highlighting the dilemma international banks face as uncertainty over Brexit drags on.
House prices are expected to rise by as little as 1 per cent over the next year, according to Halifax. The high street lender predicted that the total level of house sales will shrink in 2017 as declining economic conditions and inflation limit people’s spending power, discouraging them from buying a home or moving. Some factors would nonetheless continue to bolster house prices; a continued shortage of property for sale as well as low interest rates on fixed term.
Immigration to the UK may fall from its near record high in 2016 as the weakness of sterling, anti-immigrant rhetoric and uncertainty about the future makes the UK a less attractive destination for EU migrants.
We expect next year a dampened pound is going to cause inflation to rise well above its target rate of 2% as imports become more expensive to purchase and products become more expensive on household incomes as a result, putting pressure on wages of employees and on investment decisions being made by companies large and small.
Mrs May is to begin the formal process of exiting the EU by the end of March
The UK economy advanced 0.5 percent on quarter in the three months to September of 2016, slowing from a 0.7 percent expansion in the previous period but better than market expectations of 0.3 percent, thus counteracting any forecasts of a slowdown.
It is the first GDP figure covering a full quarter following the EU referendum, suggesting growth continues to be broadly unaffected with a strong performance in the services industries offsetting falls in other industrial groups.
The services industries increased by 0.8 percent, contributing 0.64 percentage points to growth, compared with an increase of 0.6 percent in Q2. All 4 of the main services aggregates (distribution, hotels and restaurants; transport, storage and communication; business services and finance; and government and other services) increased.
Industrial production shrank 0.4 percent and the construction sector contracted 1.4 percent.
Unemployment remains in August at an 11 year low of 4.9%.
Strong growth is said by many analysts not to continue for too much longer as British importers will have to start passing through price hikes, inflation will kick in and we should expect lower employment growth.
Consumer confidence has returned to pre-referendum levels in September with shoppers continuing to spend. They have been helped by higher wages, low inflation, and the Bank of England’s record low interest rates.
Inflation has gone up to 1% in the year to September 2016 as raw material imports have risen as a result of the falling pound, but the there was little sign of this feeding through to consumer prices yet. This was following a 0.6% growth in August and it was the highest inflation rate since November 2014 amid rising prices for clothing, overnight hotel stays and motor fuels, and a weaker pound.
The drop in the pound has aided major UK exporters, UK businesses that sell abroad and convert their profits back into Sterling and UK tourism, but it makes foreign holidays more expensive for British tourists and it has also increased import costs for manufacturers.
Inflationary pressures are building for businesses bringing in materials from abroad ie. Materials and fuels bought by UK manufacturers rose by 7.6% in price.
Banks have already started to leave the UK in order to maintain their passporting rights
The £11bn worth of agricultural products the UK sells to the EU each year will be hit with an average tariff of 22.3%. This average is constructed from some extreme highs, including 59% on beef, 38% on chocolate, 40% on cheese and and some tariffs that are not so onerous, like the 14% on wine.
The worse hit by Brexit will be retailers that import and manufacture their clothes and textiles from abroad.
The recent Marmite battle, in which Tesco resisted demands from Unilever to raise prices by 10% in response to Unilever’s prices having increased (due to increases in raw material inputs), is an early skirmish in a battle that retailers will soon begin to lose. Shares in both Tesco and Unilever took a 3% hit as a result and many analysts say this is just the tip of the iceberg for retailers. Consumer goods group Unilever warned in Augustthat prices will be pushed higher; it makes Dove Soap, icecream, biscuits and Flora.
The boss of British Airways warned that customers may have to pay higher air fares because of the slump in sterling.
Some technology companies began hiking prices immediately after the referendum. Apple has raised prices on its MacBook computers by up to 20pc overnight, making its products significantly more expensive in the UK.
But other companies say they hope to ‘absorb’ these costs, rather than pushing up prices. For example, baking firm Greggs said today it will do its “absolute utmost” to avoid price rises.
In August 2016, the Bank of England for the first time in 7 years reduced the base rate by 25bp to 0.25%.
UK retailers have performed better than expected since Brexit, increasing the likelihood that BOE will keep rates on hold this autumn and not drop rates any further. Mark carney may have saved the UK from recession via his measures but is not however averse to cutting rates even further from their 0.25% rate if necessary.
The Bank left its main interest rate at 0.25% in September but said another cut is still a possibility in November.
Uncertainty surrounding the Brexit vote failed to hit house buying in the UK with a slight rise in transactions in August. House buyer demand across the UK also rose in September, evidencing further signs of a recovery in the housing market from its post-Brexit vote slump. Low interest rates will have contributed to this.
This has positive implications for house prices, which some predicted would nosedive in the wake of the Leave victory. A shortage of supply is being cited as underpinning higher prices, despite the economic uncertainty.
If there is a hard Brexit, there would be a reduced number of foreign buyers that would follow the UK ending its membership of the single market, together with severely cutting immigration with it.
Nine per cent of UK construction sector workers come from the EU, rising to one in three in London. As a lack of property is commonly cited as the main reason house prices have increased in recent years – and continue to rise despite the economic uncertainty since the Brexit vote – this could have inflationary implications.
In both a soft Brexit and hard brexit exports to France, the Netherlands and Germany would be worst hit, while automotive, machinery and chemicals would be the most affected industries.
Forecasts state that real GDP will shrink by 0.2 per cent in 2019 if there is a soft exit (which would include a free-trade agreement).
A hard exit would push GDP down by 1.3 per cent
Source: BBC News