Although many predicted a ‘DIY recession’ would follow a vote to leave the EU, and although it’s earlydays, the UK has so far fared better than expected. Once the initial shock to leave had subsided, and the new Prime Minister, Theresa May, had stated clearly that ‘Brexit means Brexit, and we will make a success of it’, markets and economic confidence began gradually to return, bringing more stability.
The stock market hasn’t fallen sharply. The FTSE 100, made up of many international blue-chip companies rose by over 700 points in the three months following the declaration of the vote on June 24. The FTSE 250, with a greater representation of UK companies, had risen to around 17,900 three months after the vote from 16,088 points on June 24.
The lower pound is helping exports and foreign tourists. The pound fell to its lowest level against the dollar for over 30 years after the vote. A lower pound has meant that our exports are cheaper and more attractive abroad, and more tourists are finding the UK cheaper to visit.
Interest rates are low. Rates have already been cut to 0.25% and may be cut again, meaning loans and mortgages remain affordable and available. The Bank of England has signalled on several occasions that it will consider introducing further cuts and a programme of quantitative easing if market conditions make this necessary. Many experts are now predicting that the UK will narrowly avoid going into recession.
House prices have held up so far. According to data from the Nationwide Building Society*, the average price of a home in the UK rose 0.6% between July and August. The average house price rose to £206,145. Although there is some evidence that demand is cooling, if this leads to a lowering of prices, first-time buyers are likely to breathe a collective sigh of relief as it will make it easier for them to get into the market. Since the fall in the value of the pound, estate agents report that foreign buyers have been showing renewed interest in the residential housing market in London and the south east.
Inflation is holding steady. Inflation rose by 0.6% in August, unchanged on the previous month. Analysts had predicted it would be higher following the vote. Inflation is still below the Bank of England’s own per cent target level, and at present no one is predicting runaway inflation becoming a serious concern in the foreseeable future.
Employment is holding up. More people are in work than ever before according to figures from the Office for National Statistics**. Nearly three quarters of people who can work have jobs. Employment rose by 174,000 in the three months to July, the highest level since records began 40 years ago, and showing market resilience at a time when many had expected unemployment to rise.
*Nationwide Building Society, House Price Index, August 2016
**Office for National Statistics, UK Labour Market, September 2016