Pound surges on Brexit progress

The pound has surged to the highest levels in five months amid mounting hopes that Britain can leave the EU without Boris Johnson resorting to a disruptive no-deal Brexit. As the prime minister edged towards agreeing a new deal with Brussels, the currency rallied strongly on the foreign exchanges, posting its strongest two-day performance since just before the EU referendum three years ago. Sterling in the past month has jumped in value by about 5¢ against the US dollar and 3¢ on the euro, rising to about $1.30 and €1.16. The pound is still worth substantially less than on the eve of the Brexit vote three years ago, while economists warn the currency could stage a dramatic sell-off should the progress on Brexit unravel.

Breakthrough lifts UK company shares

Shares in UK-focused companies have rallied strongly in the past month, amid hopes that a disorderly Brexit can be avoided. Typically a surging pound would trigger a sell-off in the FTSE 100 as the firms in the blue-chip index make a significant proportion of their profits in overseas currencies. However, the FTSE 100 has fallen by a relatively modest 100 points in the past month. The more domestically focused FTSE 250, with more companies operating solely in Britain than the FTSE 100, has rallied by almost 300 points over the past month. The changes come in a relatively flat month for stock markets around the world, against a backdrop of heightened concerns over the health of the global economy.

Better than forecast

Inflation unexpectedly holds steady

UK inflation unexpectedly held steady in September, easing some of the pressure on hard-pressed households in the run-up to Brexit. In a development that may also discourage the Bank of England from raising interest rates any time soon, the Office for National Statistics (ONS) said that the consumer price index remained unchanged at 1.7% last month. September’s inflation reading is used by the government to raise the value of pensions, benefits and business rates every spring. However, after imposing a benefit freeze for the past four years, the government refused to confirm whether it would now allow benefits to increase in line with inflation – a sign that pressure on lower-income households could continue.

Worse than forecast

Exports slowdown bolsters trade deficit

Britain’s trade deficit with the rest of the world narrowed slightly to £1.5bn in August, missing the expectations of City economists for a greater improvement to £1.1bn. The gap between imports and exports has gradually fallen in recent months as companies across the country pause their stockpiling efforts. Earlier this year, businesses rushed to stockpile goods to protect against a no-deal Brexit, leading the trade deficit to hit the highest levels on record. As companies have stored up adequate supplies, import volumes from the EU are 12% below average for the first quarter, while exports are 10% down.

Worse than forecast

Private sector slides towards recession

Britain edged closer to its first recession since the financial crisis after the country’s dominant service sector unexpectedly plunged into contraction in September, in a sign of the mounting stress facing the economy because of Brexit. All three big sectors of the economy – services, manufacturing and construction – dropped into contraction, according to surveys of business activity by IHS Markit and the Chartered Institute of Procurement and Supply (Cips). The purchasing managers index (PMI) for all three sectors sank to 49.5 in September, from 50.6 a month earlier, on a scale where anything above 50.0 indicates economic growth. The PMI readings have been more downbeat than official growth estimates in recent months. According to the ONS, the economy grew by 0.3% in the three months to August, a stronger rate than expected. The ONS said GDP would need to plunge by at least 1.5% on the month in September for the economy to fall into recession in the third quarter. Declines of that magnitude are considered rare and extreme.

Worse than forecast

Employment falls by largest margin in four years

Brexit uncertainty appears to have dented Britain’s previously robust labour market as the number of people in work fell by the largest margin in four years in August. In signs of stress for the jobs market, employment fell by 56,000 in the three months to the end of August from the previous quarter amid job losses at high street retailers and redundancies across much of the manufacturing sector. Unemployment rose to 3.9% from 3.8% on the back of mounting concerns that the jobless total is about to begin a sustained rise. A recent increase in workers’ pay growth also came to an end in August, as average weekly earnings dropped, from 4% to 3.8%.

Meets forecast

Retail sales fail to bounce back

British consumers appear to be putting off spending on big-ticket items as uncertainty over Brexit deters them from raising their spending. Official figures showed that retail sales volumes were flat on the month in September, in line with the forecasts of City economists. However, the value of sales was down by 0.2% and annual sales growth accelerated to 3.1%, below estimates, after a weak annual growth rate of 2.6% seen in August. Drivers also cut back on buying fuel while online shoppers reined in their spending, possibly keeping their powder dry for the Black Friday online shopping event at the end of November.

Better than forecast

Public borrowing rises ahead of Javid’s first budget

Sajid Javid is preparing for his first budget as chancellor with public borrowing on the rise. In the run-up to the 6 November budget, official figures showed that a spending upturn across government departments lifted the budget deficit – the shortfall between state spending and income from taxes – in September. Borrowing was £9.4bn, about £600m higher than in September a year ago, although it was slightly below the expectations of City economists. The rise in the deficit comes as Johnson’s government pledges to increase spending on health, schools and policing before an election. The Institute for Fiscal Studies, a tax and spending thinktank, warned this month that Johnson could lift the public debt – the sum of all budget deficits recorded throughout history – to levels unseen since the mid-1960s as Brexit and government spending plans dent the public finances.

Better than forecast

House price growth gradually recovers

House prices across the UK still appear to be rising, although only just, despite Brexit uncertainty sapping the confidence of buyers and sellers. A gauge of house prices from the Royal Institution of Chartered Surveyors – which shows the difference between members reporting price rises and falls – improved to -2 in September from -4 a month earlier, above the forecasts of City economists. Figures from the Land Registry and ONS showed the year-on-year growth in house prices rose to 1.3 % in August from 0.8% in July but remained below the increases seen this time last year.

And another thing we’ve learned this month … Boris Johnson’s Brexit deal set to lose Britain £130bn in GDP growth

The Brexit deal negotiated by Johnson is expected to sacrifice as much as 6.7% of lost GDP growth over the next 15 years, or as much as £130bn that the UK economy would grow by if Britain stayed in the EU. Although the prime minister has refused to publish a detailed impact assessment, economists said estimates drawn up a year ago by the government contained a scenario similar to his deal, which envisions striking a limited free-trade deal with the EU. Johnson has hinted he expects to press Brussels for a “Canada-minus” trade deal, which would be more limited in scope than Canada’s free-trade agreement with the EU. The government analysis, compiled at the time of Theresa May’s deal, indicated that the former prime minister’s deal was worth as much as 3.9% in lost growth. A no-deal Brexit would cost as much as 9.3% in foregone growth, while no option was better for GDP growth than remain.