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Brexit chaos overshadows economic rebound in January

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As Brexit dominated the headlines again this week, a lot of economic data went almost unnoticed. The Office for National Statistics (ONS) estimated that the UK economy rebounded in January. GDP rose by 0.5% in the month compared to December, beating expectations, and quarterly growth hit 0.2%. The annual rate of economic growth was therefore 1.4%, compared to 1% in December. The uplift was courtesy of the dominant services sector, which expanded by 0.5% in the three months to January. Both construction and manufacturing contracted in the same three-month period although the sectors’ performance in the month of January alone was much improved.

Rob Kent-Smith, head of GDP at the ONS, said: “Across the three months, growth remained weak with falls in the manufacture of metal products, cars and construction repair work all dampening economic growth. These were offset by strong performances in wholesale, IT and health services. This sluggish growth came despite the economy bouncing back from a weak December”.

Later in the week, a survey by the Royal Institution of Chartered Surveyors (RICS) showed that surveyors are blaming Brexit for damaging confidence in the housing market, which in turn is leading to price declines and a reluctance to put properties up for sale. Almost 80% of estate agents surveyed said that Brexit was the biggest obstacle for the housing market. The number of homes for sale fell to a record low in February, and each estate agent has only around 42 properties for sale at each branch – the lowest since records began in 1994. Buyer demand also dropped for the seventh consecutive month, while the number of agreed sales also slumped, “with virtually all parts of the UK displaying a flat or negative trend”. As for prices, London, the South East of England, East Anglia and the South West are all continuing to see sales prices drop. 

The chancellor’s Spring Statement on Wednesday was overshadowed by the historic and often chaotic Brexit votes in parliament, but revealed downgrades in UK economic growth forecasts in the short term, before a pick-up in subsequent years. The Office for Budget Responsibility (OBR) downgraded its forecast for economic growth in 2019 to 1.2 per cent from 1.6 per cent previously. The OBR maintained its prediction of 1.4 per cent growth in 2020 and increased its forecast for 2021 to 1.6 per cent from 1.4 per cent previously. The figures were based on an “orderly Brexit”.

The chancellor, Philip Hammond, also unveiled relatively healthy public finances. The government is on track to borrow £22.8bn this financial year to plug the gap between spending and tax receipts – almost £3 billion lower than the £25.5bn predicted by the OBR in October. The OBR said it expected the improvement to continue, assisted by increasing tax revenues and lower spending on debt interest. Borrowing is expected to rise to £29.3billion next year, but then fall over the next four years. Hammond hinted at an “end to austerity” if the UK could leave the EU with a deal, and said that there could be a £26billion “dividend” to fund increased public spending if a deal were done. Thursday’s vote to extend article 50 appears to take a no-deal exit off the table since the EU is reported to be receptive to a delay, although it requires the unanimous approval of all 27 member countries.

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