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Further Clues on Brexit Vote to be Provided by UK Economic Data this Week

Further Clues on Brexit Vote to be Provided by UK Economic Data this Week
With new figures on consumer confidence, the housing market and the embattled manufacturing sector being released this week, there will be fresh clues on how the Brexit vote has affected households and businesses.  
While businesses have scaled back investment and hiring plans, indications so far have suggested consumers shrugged off the decision to leave the EU and hence economists will be poring over the releases to get a clearer picture of the referendum’s impact. While nothing has pointed to dramatic house price falls, the housing market has slowed in some areas.
Some economists are reassessing their predictions that the economy would grind to a halt in the months following the Brexit vote after many indicators since the referendum have turned out stronger than economists had expected.
“The recent run of data can scarcely be described as stellar, but it has confounded some of the worst fears about how the economy would react to the referendum result,” said Andrew Goodwin at the consultancy Oxford Economics.
“It is still very early days in terms of gauging the impact of the referendum on the economy and much could still go wrong. But if next week’s higher profile clutch of surveys for August ... follow the pattern shown by the other recent indicators then this might encourage us to upgrade our forecast for third quarter GDP growth from the flat outturn that we currently anticipate,” Goodwin said.
Forecasts have already been raised by some economists. IHS Markit has raised its GDP growth forecast to 1.9% and 0.6%. and had been expecting GDP growth of 1.6% this year, slowing to just 0.2% in 2017.
Howard Archer, IHS’s chief European & UK economist said that the increased optimism is largely due to the current resilience of the consumer.
 “We now believe that the economy is likely to achieve modest growth of around 0.2-0.3% quarter-on-quarter in the third quarter and could well dodge contraction in the fourth quarter,” Archer said.
The consumer confidence report on Wednesday from market researchers GfK will be one key focus this week. That is expected to show that households are less gloomy than in the immediate aftermath of the referendum even though they remain nervous about the economic outlook.
As people reported being gloomier about their own finances, the broader economy and whether now was a good time to make big purchases such as furniture and household appliances, the July poll had recorded the biggest slide in consumer confidence for more than 26 years.
According to a Reuters poll of economists, up from July’s -12, August’s headline consumer confidence reading is expected to come in at -8.
“We suspect that consumer confidence recovered some of July’s sharp losses as consumers got over the initial shock of the Brexit vote. It is also very possible that confidence benefited in August from a feelgood factor coming from the good weather and from Team GB’s strong performance in the Rio Olympics,” said Archer.
Other important indicators and data include a survey of construction firms on Friday and a survey of manufacturers on Thursday. These purchasing managers’ index (PMI) reports were particularly gloomy for July and would be closely watched. In a stark contract to f=growth of 0.6% in the previous three months, the surveys’ compilers said they pointed to a 0.4% drop in GDP in the July-to-September quarter.

Christopher J. Mitchell

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