Six graphs showing the state of the UK economy a year after Brexit referendum

It has been a year since British voters went to the polls and voted by a narrow margin to leave the European Union. The Brexit referendum triggered a heated debate about the potential economic effects of Brexit. But what has actually happened to the UK economy in the year since the Brexit vote? These six graphs help explain.

GDP growth

Overall, the UK economy performed relatively well in terms of GDP growth during the second half of 2016 following the referendum. However, more recently there have been indications of a slowdown in economic activity in the UK.

The pound

The British currency was one of the economic variables that was most affected by the decision of the British electorate to leave the EU. Sterling has depreciated by a significant amount, around 15%, since last year as international markets reacted to the announcement of Brexit. A standard explanation is that markets expect lower volumes for future UK-EU international trade and also that longer term projections for future UK growth could be revised downwards.

Inflation

The depreciation of the pound has contributed to a significant rise in the price of imports into the UK. British consumers are now having to pay a much higher price for foreign products. As a result, inflation increased from 0.5% in June 2016 to 1% in September and 2.9% in May 2017, the highest in four years. This is likely to affect both businesses that import products, and consumers.

The rise in inflation also raises challenging questions for members of the Bank of England’s Monetary Policy Committee (MPC), which sets UK interest rates, and has a target to keep inflation below 2%. The MPC could tighten monetary policy by raising interest rates in order to reduce inflation, but this will probably hurt households and potentially GDP growth. Alternatively, it could decide to ignore inflation for the moment and lower interest rates even further. Or do nothing. In June 2017, members of the MPC remained divided over whether it is the right time to raise interest rates.

Average earnings

In the labour market, the most notable change has been a drop in real weekly earnings since the end of 2016. Average weekly wages (excluding bonuses) fell from £461 in June 2016 to £459 in December 2016 and £458 in April 2017. This is the result of weak nominal wage growth (closely related to the UK’s productivity puzzle), combined with the steady rise of inflation. Real wages have fallen in the UK and people are beginning to feel the pinch.

Household savings

The drop in average earnings could have serious consequences for future UK GDP growth. This is both because household savings have steadily depleted in recent years, and recent UK GDP growth was driven by consumer spending. If consumers have less in their pay packet each month, the economy could slow further.

The households savings ratio attempts to present a picture of how much money households save as part of their income. When the savings ratio is very small, it implies that households have fewer savings relative to their disposable income. In 2016, the ratio was at 5.2%, its lowest level since records began in 1963.

Trade balance

One potential positive effect of the pound’s devaluation could have been an improvement in the UK’s trade balance – but that has not yet materialised. Standard economic theory predicts that currency devaluation will reduce a country’s imports (which become relatively more expensive), increase exports (relatively cheaper) and so improve the trade balance.

The UK’s trade deficit was around £175 billion at the time of the referendum in June 2016. Since then, although exports have risen by 12%, imports have risen at the slightly faster pace of 12.7%. As a result, the UK’s trade deficit had worsened to £197 billion by the end of March 2017.

A trade deficit is not a problem per se, but a devaluation could have brought a sizeable increase in the export sector and helped to boost employment and wages. There are a number of reasons for why this did not happen, with one being that UK exporters have not reduced the prices of goods sold abroad in foreign currency, and so just increased their profits per unit sold.

The UK economy performed relatively well until the end of 2016, but there are signs that 2017 is going to be a challenging year. There is some evidence – although early – that the economy is slowing down. Bloomberg’s Brexit Barometer, an index tracking the impact of Brexit on the economy, has fallen in recent months, but does not put the economy in a “worse state” than before the referendum.

Of particular interest is going to be how households will react to the rise of inflation and the erosion of their real income given that their savings are at historically low levels. And don’t forget the increasing uncertainty that Brexit negotiations and tactics will bring to the economies of both the UK and EU.

Source: The Conversation

How to turn a chaotic election result into a better Brexit

THERESA MAY called a snap election two months ago to build a “strong and stable” government. How those words will haunt her. On June 8th voters decided that, rather than transform her small majority into a thumping one, they would remove it altogether. The result is a country in an even deeper mess. Mrs May is gravely wounded but staggering on. If and when she goes, yet another election may follow—and its plausible winner would be Jeremy Corbyn, of Labour’s far-left fringe. On the eve of the Brexit referendum’s first anniversary, the chaos it has unleashed rumbles on unabated.

With negotiations due to begin in Brussels in days, the circumstances could hardly be less promising. Yet the electoral upset has thrown up a chance for Britain and the European Union to forge a better deal than the one which looked likely a week ago. Because Mrs May’s drastic “hard Brexit” has been rejected by voters, the question of what replaces it is back in play.

More at Economis

Dear Theresa May: a counter-terrorism lesson from Africa

An open letter cautions that human rights aren’t a barrier to fighting terrorism, but part of the solution.

From the Institute for Security Studies, Africa:

Dear Prime Minister,

Congratulations on your election victory, which comes at a difficult time for your country and your leadership. What the United Kingdom (UK) needs now is certainty, you’ve said. Citizens will no doubt look to your campaign promises to see what that might mean for them.

That’s what we wanted to talk to you about, actually. Usually, we criticise politicians when they fail to deliver on their sweeping campaign promises. This time, we are in the strange position of hoping that there is one promise you won’t keep.

The twin terror attacks in Manchester and London in the run-up to the vote were tragic. The very real threat of terrorism facing the UK was rightly condemned in the strongest terms by leaders across the political spectrum, yourself included. ‘Enough is enough,’ you said, and ‘things need to change’.

You’re right. Things do need to change. But we’re worried about the changes you propose to make.

More at – ISS Africa

The Bad Friday Agreement – Some Tory MP’s Not Happy

Tory MPs Are Really Worried About The DUP’s Gay Rights Record”

Tory MPs have told BuzzFeed News they are deeply concerned that any alliance with the Democratic Unionist Party (DUP) could cause serious damage to the Conservative party’s public image owing to the Northern Irish party’s record on LGBT and abortion rights.

Politicians on the modernising wing of the Conservatives fear the party’s progress in appealing to minorities could be wasted, and say they are already receiving large volumes of correspondence from constituents concerned about a formal alliance with a party that has consistently blocked same-sex marriage in Northern Ireland, and opposed any move to legalise abortion.

LGBT Conservative groups have registered their opposition, while the increasingly-powerful Scottish Conservative leader Ruth Davidson requested specific reassurances from Theresa May that LGBT rights would be defended as part of any arrangement with the DUP.

“Privately, people have expressed their concerns to the whips and Number 10,” former education secretary Nicky Morgan told BuzzFeed News. “MPs are being flooded from emails from campaign groups.”

More at: Buzzfeed

“Tough-minded, abrupt, likable, human: Martin McGuinness” The Guardian

Asked recently to pick just one great memory from my time with Tony in Downing Street, I went for the coming together of the Good Friday agreement that laid the foundations for peace in Northern Ireland. It was magical. A lot of that was about the collection of personalities from across politics that came together to make history – and Martin McGuinness was a big part of the success it became.

Those early talks with Sinn Féin after Labour came to power in 1997 were a risk for both sides. It was a risk for Labour politically, but it was in many ways a bigger risk for Martin McGuinness and Gerry Adams.

Read more The Guardian

Public Policy and the Past: British social democracy in crisis

Most politics commentary is impoverished in two ways. It is geographically parochial and temporally anachronistic. It can see neither the big view nor the long view. It is obsessed with the latest rivalries, the newest personalities, the most novel ups and downs. So the Labour Party’s deep travails focus on the struggle between its MPs and leader. On the latest reshufflings within constituency parties or in the National Executive Committee. Whatever today’s latest bit of shouting involves.

But zoom back, and Labour is actually in the grip of an acute crisis within social democracy itself. And these apparently-insoluble dilemmas are not happening in Britain alone. The Greek Socialists were wiped out by that country’s financial crisis. The Dutch Labour Party took a tremendous beating last week. The French Socialists are about to lose the presidency, either to a charismatic centrist or to the far right. At its base, social democratic coalitions have always tried to reach out to everyone (above) – professional people, working people, the young, the old, men and women, all nations within a state – because social progress is thought to benefit everyone. More recently, this has increasingly come to mean finding the glue that will stick the instincts of liberal urban dwellers to more socially conservative voters in small and medium-sized towns. For a number of reasons – large-scale immigration, rapid cultural change, a yawning age gap in the attitudes of the generations, stagnating wages, you name it – those links are coming apart.  It may not be possible to hold them together for much longer.
wages, you name it – those links are coming apart.  It may not be possible to hold them together for much longer.

Source: Public Policy and the Past

“Self-employment: Who’s dodging the tax?”

Rick at Flip Chart Fairy Tales asks “Who’s dodging the tax?”

As I understand his post, the answer is – the employers, who can get away with taking on regular staff, but describing them as “self-employed”. That removes the obligation to pay national insurance charges, depriving HMRC of income, and also places the obligation on the worker, to pay their own expenses and “benefits” (such as sick leave).

The proposed changes in NIC did nothing to change that. There is tax avoidance here, but it’s by the employer, not the workers.

It should not be possible for businesses to hire people for what is effectively regular employment, but classify them as self-employed, to avoid paying tax and benefits. What is needed is not changes in tax rates, but tighter control over what constitutes “self-employment”.

Are lots of people going self-employed to avoid tax?

That suggestion comes through in the reporting of the widely expected increase in national insurance for the self-employed. The Independent, for example:

‘dramatic increase’ in number of people registering as self-employed to cut tax bill

And that was the general tone of the chancellor’s speech:

People should have choices about how they work, but those choices should not be driven primarily by differences in tax treatment.

Source: Flip Chart Fairy Tales

(See, for instance this graph in Rick’s post):

Second major 2015 Tory manifesto pledge dropped in a week | The Independent

The Conservatives have been accused of dropping a second manifesto pledge in the space of a week after ministers rowed back on plans to build hundreds of thousands of “starter homes” for first-time buyers.

Chancellor Philip Hammond sparked negative headlines after the Budget on Wednesday when he raised National Insurance for self-employed people, ditching a Conservative manifesto promise not to raise the tax.

But the Government has also now binned David Cameron’s flagship housing policy of building 200,000 starter homes at 20 per cent below market price, championed by the former Prime Minister just last year.

Source: The Independent

Unionists could make pact to keep blocking equal marriage in Northern Ireland · PinkNews

Arlene Foster and Roy Beggs (Photo by Charles McQuillan/Getty Images)

Just days after Northern Ireland’s Democratic Unionist Party lost their veto power over same-sex marriage, another MLA has vowed to help them block it.

Assembly elections were held last week in Northern Ireland after the collapse of the previous government, with the anti-gay marriage DUP losing ground to Sinn Féin.

The DUP, which lost nearly all of its hefty majority, had previously used peace process powers known as ‘petitions of concern’ to block same-sex marriage.

Hopes of progress were raised over the weekend when the DUP won just 28 seats – two short of the 30 needed to pass a petition of concern by themselves.

However, it’s far from plain sailing, and unionists from two other parties, the Ulster Unionist Party and Traditional Unionist Voice, have vowed to prop up the DUP on the issue.

Source:  · PinkNews