Upswing in global growth bumps up the pound as UK economy proves resilient despite concerns over leaving the EU
The pound has reached its highest levels since before the Brexit vote, as a Guardian analysis of economic news over the past month shows the economy benefiting from an upswing in global growth.
Sterling surged against the dollar on Wednesday, extending gains in the past month to hit more than $1.40 for the first time since the June 2016 referendum, after fresh figures showed employment hitting its highest levels since the 1970s when modern records began.
After confounding doomsayers who predicted a recession would follow a leave vote in the EU referendum 18 months ago, the economy has proven resilient, helped by improving economic conditions around the world. The National Institute of Economic and Social Research expects official figures published on Friday to show the strongest rate of quarterly growth for 2017 came in the final three months of the year.
But economists said the UK was lagging behind its major rivals, and could have enjoyed stronger growth without the leave vote. According to a forecast by the International Monetary Fund this week, the UK is set to grow at almost half the rate of the US in 2018 and lag behind every other G7 nation except Japan.
Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s rate-setting monetary policy committee (MPC), said economic strength around the world was supporting international trade at home, but that 2018 is set to be “another year of disappointing growth”.
“Whereas most other major economies have been speeding up over the past year, the UK economy has slowed down,” he said.
To gauge the impact of the Brexit vote on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists made forecasts for seven of those barometers before their release, and in four cases the outcome was better than expected.
The latest dashboard shows sterling staged a sharp recovery against the dollar amid speculation the UK might be able to secure a favourable Brexit deal. The pound has also benefited from a weak dollar in recent weeks, as investors look beyond the US for opportunities as the world economy booms.
There was good news for workers, with the rate of pay growth rising in the three months to November, while the number of people in work also increased to the highest level since records began in the 1970s.
According to the Office for National Statistics, average weekly earnings excluding bonuses rose by 2.4%. However, pay growth continues to lag behind the rate of inflation, which stood at 3.1% in November.
At a time of booming activity around the world, figures over the past month showed UK factories grew their output for an eighth consecutive month in November, a feat last seen in May 1994, helped by increasing exports.
Export demand from Europe, the US, China and the Middle East helped UK factories to enjoy the strongest quarter of growth since June 2014 in the final three months of the year, according to the IHS Markit/CIPS purchasing managers index.
However, domestic demand remains relatively weak, as households come under pressure from sluggish wage growth and high levels of inflation.
The economy is “weak and stable”, according to a key Government financial watchdog. The comments from chairman of the Office for Budget Responsibility (OBR), Robert Chote, appear to be a reference to prime minister Theresa May’s “strong and stable” general election slogan.
Chote told The New Statesman that the UK economy was “weak and stable, rather than strong and stable”.
The latest dashboard showed some positive signs, as the rate of inflation dipped last month for the first time since June, dropping to 3%, in the first signs that the effects from the fall in sterling are beginning to wash out of the system.
But with wage growth still running behind inflation, households may be forced into debt to keep up with the rising cost of living.
The squeeze was sharply felt on the high street last month, as consumers reined in their spending in December – leading to a flurry of profits warnings from firms such as Debenhams and Carpetright. Statisticians said Black Friday deals enticed people to pull their spending into November and warned the annual growth in retail sales for 2017 was the weakest for four years.
Writing in the Guardian, David Blanchflower, professor of economics at Dartmouth College and a former MPC member, said the last month showed the story of the “struggling consumer”.
“Even though inflation this month fell back to 3% it is still more than double the 1.4% in the eurozone … Real earnings are still 3% below their levels at the start of the Great Recession in 2008,” he said.