Earlier this month the Bank of England Chief Economist Andrew Haldane admitted that as far as the UK economy was concerned in 2016, last year’s referendum vote may as well not have happened, given the lack of any economic impact over the course of the rest of the year.
Without too many exceptions economic bodies have ended up with egg on their faces with respect to their short term predictions, underestimating the reaction function of people who were able to look through of some of the more ridiculous hyperbole from both sides.
As we head into 2017 the data continues to hold up fairly well, though there are signs that inflation continues to pick up and this is likely to act as a brake on consumer spending in the coming months.
With retail sales already at 10 year highs it is inevitable that we will see a consumer slowdown in 2017, even without Brexit.
Last week UK CPI hit a 29 month high of 1.6%, while more worryingly input prices surged nearly 16% in December, which suggests that inflation could hit the Bank of England’s 2% target by the middle of this year. For now wages are still tracking above this level at 2.7%, and with a labour market that continues to look tight, the hope is that this shouldn’t create too much of an income squeeze as the rise in input prices trickles down into the broader economy.
Of course now that Prime Minister Theresa May has outlined her Brexit plan there is a risk the economic outlook could change now that it has become clear that the UK will be leaving the “single market” and customs union, and that’s before we even start to consider the effects the Supreme Court ruling, which is due on Tuesday 24th January might have on sentiment.
That this didn’t see further sterling weakness could well be a warning that we may well have seen a near term base in the pound, given last week’s failure to push below the $1.2000 level.
This week we get the first iteration of UK Q4 GDP which is expected to show that the UK economy grew at 0.5%, slightly down from Q3’s 0.6%. An important caveat here is that this will be a very narrow view of the economy accounting for only 40% of the available data, but it will nonetheless be expected to point to another decent quarter and the 16th consecutive quarter of positive GDP growth.
It will also potentially cement the UK’s position as the best performing G7 economy in 2016.
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