March 2017 was dominated by Brexit and concluded with the triggering of Article 50. Both the UK Government and the European Commission say the act is irrevocable, meaning that by April 2019 the UK will probably have left the EU. In other news inflation increased, unemployment continued to fall and the Spring Budget included an increase in National Insurance contributions for the self-employed, which was reversed a week later.
Inflation continued to rise
Consumer Prices Index (CPI) Inflation increased to 2.3% in February 2017, its highest rate since September 2013, and an increase from 1.8% in January 2017. This reflected upwards pressure from increasing food and transport costs, particularly for fuel.
This was the first month of positive food price growth since April 2014, with positive contributions mainly from fruit and fish, offset by negative contributions from vegetables and meat. There were some rises in individual vegetable product prices in February following the widely reported courgette crisis.
The trade deficit was at its lowest level in five years
The trade deficit was £4.8 billion in the final quarter of 2016, down sharply on the previous quarter figure of £14.8 billion which was unusually large. This was the lowest deficit since Quarter 2 2011.
The main reason for this fall was an increase in exports of £10.4 billion from the previous quarter, while imports increased by only £0.5 billion. Goods exports grew particularly strongly, increasing by £7.6 billion (+10%). While this was partly due to increases in exports of erratics (such as aircraft and non-monetary gold) and oil, exports of other categories of goods increased by £3.5 billion.
Lowest unemployment rate since 1975, but earnings growth slows
1.58 million people in the UK were unemployed in November 2016- January 2017, down 31,000 on the previous quarter and down 106,000 from the previous year. The unemployment rate was 4.7%, down from 5.1% a year earlier. This rate has not been lower since June to August 1975.
Average weekly earnings were 2.2% higher in the three months to January 2017 than in the year before. This was lower than the growth rate in the three months to December 2015 and the three months to December 2016 (2.6%), reflecting lower pay growth across a broad range of industrial sectors. Pay growth was larger in the private sector (2.4%) than in the public sector (1.4%). Inflation as measured by the CPI averaged 1.5% over the same period.
There was a negative reception to a proposed increase in self-employed National Insurance contributions in the Spring Budget
The Spring Budget 2017 was presented by the Chancellor of the Exchequer to Parliament on 8 March. At the same time the Office for Budget Responsibility (OBR) published updated forecasts in its economic and fiscal outlook.
The main talking point from the budget was a proposed increase in the main rate of National Insurance contributions for the self-employed. The proposal had a negative reception from some quarters, and a week later the Government announced that they would withdraw it, and that there would be no increase in National Insurance contribution rates in this Parliament.
In its March 2017 forecasts the OBR announced that it expects annual GDP growth to be higher in 2017 than in its November forecasts, but lower in 2018, 2019 and 2020. It also lowered its forecast for government borrowing in 2016/17 by £13.4 billion (on a like-for-like basis) to £51.7 billion, or from 3.3% of GDP to 2.6%; but expects broadly similar borrowing in each year from 2017/18 to 2021/22 as in its previous forecast.
A full breakdown of the other Government announcements and OBR forecasts from the budget are included in the House of Commons Library briefing paper Spring Budget 2017: A summary.
Article 50 has been triggered
On Wednesday 29 March the UK’s ambassador to the EU Tim Barrow delivered a letter from Theresa May to EU Council President Donald Tusk. The letter gave formal notice of the UK’s intention to leave the EU and its single market, meaning that Britain will likely officially leave no later than April 2019. It also starts the clock on the two year period the UK has to negotiate an exit deal with the EU.
This article was originally published in the April edition of the Library’s Economic Indicators paper. The monthly publication provides a snapshot of key economic data covering: growth, labour market, finance, borrowing, trade, exchange rates, business, retail and housing. Individual pages are updated through the month as new data come out.