Source: The Guardian
Fears of a post-referendum recession have receded further after a rise in exports and a better month for the struggling construction industry buoyed hopes that the UK economy has continue to grow since 23 June.
As the pound tumbled following the Brexit vote, goods exports from the UK to other countries rose 3.4% between June and July. Exports to the EU, made cheaper by the pound’s decline, rose 9.1%, according to official figures. It was the biggest rise in EU exports since October 2010.
In a separate release the Office for National Statistics (ONS) said construction output stabilised in July, defying expectations among economists for another drop. Construction companies also enjoyed the biggest pick-up in orders for three years in the three months leading up to the referendum.
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The ONS said a rise in exports and drop in imports in July helped narrow the UK’s goods trade deficit with the rest of the world to £11.8bn in July from £12.9bn in June, broadly in line with expectations in a Reuters poll of economists.
There was also a narrowing in the deficit on the trade in goods and services to £4.5bn from £5.6bn in June. That gap is smaller thanks to the UK consistently running a surplus in trade in services – an area covering businesses such as financial and legal services – which helps make up some of the trade deficit in goods.
Britain’s international trade secretary, Liam Fox, said: “This data is very encouraging as it shows a major boost for exporters post referendum. However, while these statistics are highly encouraging we need to wait for further trade data to determine whether this is a clear trend.”
Economists have been revising up their gloomy predictions for the UK economy in recent days as news as more positive data rolls in. Consumer spending appears to have held up well and surveys suggest manufacturing and services companies enjoyed a rebound in activity in August following an initial post-referendum slump in July.
Howard Archer, economist at the consultancy IHS Global Insight, said the improved trade performance in July lifted hopes it would make a positive contribution to third-quarter GDP.
“Decent news for UK third-quarter growth prospects as the trade deficit narrowed markedly in July helped by improved exports, and construction output defied expectations of a drop in output,” he said.
Based on recent business surveys published by financial data company Markit, the economy looks likely to have grown 0.1% in the third quarter. That would represent a sharp slowdown from 0.6% in the second quarter.
But Archer also noted the ONS’s warning not to read too much into one month’s data. In its report on trade, the ONS said: “As monthly data can often be volatile, it is unclear whether this is an impact of the depreciation of sterling and it is necessary to look at the trend over the next few months to get a clearer picture.”
On construction, the ONS said: “There is very little anecdotal evidence at present to suggest that the referendum has had an impact on output. You should note that we always warn against overly interpreting one month’s figures.”
Paul Hollingsworth at the consultancy Capital Economics echoed those warnings.
“While we would caution against reading too much into any one month’s figures at the best of times, this is particularly true of trade and construction figures.
“Indeed, the survey evidence suggests that the near-term outlook for construction is poor … The near-term outlook for trade on the other hand looks a little better … The upshot is that while it is still early days, the latest figures give us little reason to alter our view that the immediate impact of the vote to leave the EU will be less severe than many had anticipated.”
Chiming with recent business surveys showing companies are having to pay more for imported materials because of a weaker pound, the ONS trade release showed import prices grew by 3.2% on June 2016.
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Suren Thiru, head of economics at the British Chambers of Commerce, said the UK’s near-term trade prospects would continue to be largely determined by how much the benefits of lower sterling for exporters are offset by higher input costs.
“Over the long-term, the UK’s trade position will be driven by how successful the government is in delivering the best possible terms of trade for the future, both with the EU and with markets further afield,” added Thiru.
The ONS construction figures showed output was flat in July, better than economists’ expectations for a 0.8% drop. It compared with a 1.0% drop in June. Measured against a year ago, output was down 1.5%, the biggest drop since April 2013 but above expectations for a 3.2% drop in a Reuters poll of economists.
Construction orders rose 8.6% in the second quarter compared with the first quarter, primarily boosted by housing.
The figures will reassure Bank of England policymakers meeting to set interest rates next week that they can afford to leave policy unchanged for now.
Interest rates were cut to a new record low of 0.25% in August and governor Mark Carney hinted another cut to take rates close to zero could follow before the end of the year. But economists expect the monetary policy committee to wait until November to cut again.