World Economy

UK Pro-Brexit Growth Vague

UK Pro-Brexit Growth Vague UK Pro-Brexit Growth Vague

The UK economy has shown some post-Brexit strength. All it needs now is stamina. Focus is on whether the economy can sustain the initial robust readings that came last week.

Labor-market resilience and the best retail-sales growth in any July since 2002 helped push Citigroup Inc.’s Economic Surprise Index, which measures the data’s strength relative to analysts’ forecasts, to its highest since 2013, Bloomberg reported.

Those reports—the first official numbers since the June referendum—confounded expectations for a slowdown. Investors pared bets for a Bank of England rate cut by November, and the pound posted its best weekly gain in more than a month.

While the new data suggest the UK is shrugging off economists’ warnings about post-Brexit turmoil, Joe Grice, chief economist at the country’s statistics office, said it’s too early to be definitive, and one week of numbers don’t give the full picture. He told Bloomberg Television that “the story is still to unfold,” noting that there’s limited information so far on business activity and trade.

“Anyone telling you that it’s Armageddon is lying and anyone that’s telling you it’s all dandy is lying,” said Grant Lewis, an economist at Daiwa Capital Markets in London who previously worked at the UK Treasury. For the markets to start pricing out a rate cut by November, “it’s too early on the back of one retail-sales release.”

While the BoE has already reduced its key interest rate since the Brexit vote—the first such action in more than seven years—a majority of policy makers expect another move if the economy deteriorates in line with their central forecast.

Industrial production and trade figures for July—the first full month after the EU referendum—will be published in early September.

“If the hard data over coming months continues to surprise to the upside—and we will need a few months to know for sure—there is just a chance that the economy will hold up better than many economists expect,” said Victoria Clarke, an economist at Investec Securities in London. That “might lead monetary and fiscal policy makers to ease back on calls for further stimulus measures.”

 Effects of Sterling’s Fall

Bargain-hunting tourists are flocking to the UK to exploit the plunging pound but Britons are burning money on their summer holiday in Europe.

The dramatic slide in sterling since the Brexit vote has given British holidaymakers enough pain already. But there was a further shock in store this week after some airports offered less than €1 to £1 at two major airports.

At Stansted and Luton, travellers found they could not even exchange £1 for €1, which at least prepared them for the financial squeeze at their destinations. Those holidaying in Europe are finding that meals, coffees, drinks and other items are typically at least 22% more expensive than a year ago.

There has, however, been a benefit for the British economy. On Thursday, official data showed that retail sales leapt 1.4% in July following a drop in June–apparently helped by an influx of big-spending overseas tourists from the likes of the US, China and Hong Kong.

According to this week’s official retail sales data, purchases of watches and jewelry were up 16.6% on the year, a rise largely attributed to foreign buyers. For European and Chinese visitors, prices in British stores are now roughly 18% and 13% below mid-August 2015. For Americans it is around 16%, while for Australians everything is now a fifth cheaper.

The weak pound has added hundreds of pounds to the cost of many people’s summer holidays. According to M&S Bank, the typical cost of a one-week overseas summer holiday for a family of four, including flights, accommodation, meals and spending money, had risen by £429 compared to last year due to the fall in sterling.