One month on from the referendum: what more do we know?
It’s still a case of wait and see.
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A lot has happened in the month since the vote to leave the European Union. We have a new Prime Minister, a new Cabinet, a new department for Brexit and a whole new theme of government.
While George Osborne’s plan at the Treasury was concentrated on sorting out the public finances and returning the government’s balance sheet to surplus as soon as possible, Mrs May and her new chancellor have a different approach to building the economy. Reducing the emphasis on austerity, opens opportunities for tax cuts and higher government spending as an extra stimulus to growth. That’s not to say that austerity is out of the window, just that there will be extra time allowed to get the budget back into surplus.
The financial markets are still adjusting to the new world order. After falling so sharply on the result of the vote, stock markets and Sterling have recovered somewhat and are becoming a little less volatile – although the extent depends on which index you choose.
And the Monetary Policy Committee has made it almost certain that interest rates will be reduced at their August meeting – meaning the question is only by how much. That coupled with a relaxation on banks capital buffers sends a strong signal that the economy will be supported as much as possible through monetary policy.
This action and reaction is so far based on expectations that the UK economy will be weaker outside of the EU and that the uncertainty as we wait for negotiations to conclude will delay investment and hinder future growth too. But so far there is very little data which shows that this is actually happening and how things will change.
The Bank of England’s Agents – their representatives around the country that keep their fingers on the pulses of local businesses - assessed views after the vote. The outcome was very much business as usual, with no early plans to change anything. Indeed, there is little evidence that companies who said they would move operations out of the UK have made any moves to do so.
Consumers it seems have continued to spend, despite consumer confidence hitting a 21-year low in the post-Brexit period. With employment having increased consistently over the last five years households are in a much better place than they may have been to withstand a downturn.
And in the mortgage market there continues to be a variety of extremely keenly priced loans available to buy property. Indeed, in contrast to the financial crash of 2008, banks and building societies are in very much better shape, which will allow them more freedom and ability to continue to lend . This is crucial and will be extremely important for the health of the housing market. After all it was the lack of the availability of credit which caused the major problems in the market downturn of 2008.
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