Market Insight - October 2016
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50s Are the New 40s

So Far, Better Than Expected!
We have cleared the first hurdle, but there are many more to go.

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Economic data since the referendum has been surprisingly benign. Despite fears that uncertainty about the UK leaving the EU would affect investment and consumer spending, initial data suggests that hasn’t been the case. Retail sales have been better than expected, employment has been stable and real (inflation adjusted) earnings have continued to increase.

So far then the economic fallout from the referendum result has been much better than expected. That has been reflected in the latest set of forecasts from the OECD, which said that the immediate shock from the referendum had not been as serious as it had expected. It has raised its projection for UK GDP by 0.1 per cent to 1.8 per cent for the year. Other independent forecasters have done the same. Even the chief economist at the Office for National Statistics has said that so far the referendum result has not had a major effect.

That’s not the whole story though. While forecasts for economic growth in 2016 may have been revised up, those for 2017 have been revised down. Some small business confidence surveys are reporting a weakening trend and some large businesses have again reported reluctance to make decisions about locating in the UK – at least for the time being.

It’s hardly surprising. So far nothing has actually changed. The UK is still in the EU and will remain so for some years yet. The clock will only start ticking when Article 50 is invoked in the first half of next year.

Until then we do not know what type of exit the UK will make, nor the types of trade deals we can negotiate. The question for the economy is how long the ongoing uncertainty can be tolerated and what the longer term effects on the UK will be..

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