Economic Indicators, June 2019

Economic update: The economy and the March 29 effect

The economy grew by 0.3% in February-April compared to the previous quarter. The services sector was the largest contributor, while production also contributed to quarterly growth.

The employment rate is again at a record high, with 76.1% of people aged 16-64 in work, and the unemployment rate is again at its lowest since 1975, with unemployed people making up 3.8% of the economically active. The number of job vacancies remains relatively high – in other words, companies are still hiring.

The inflation rate is in line with the Bank of England’s target, with consumer price inflation at 2.0% in May. Earnings are rising faster than inflation – excluding bonuses, average earnings were 1.4% higher than February – April the previous year. Including bonuses they were 1.2% higher.

What was the economic effect of planning to leave the EU on 29 March?

Preparations for the originally expected Brexit date of 29 March affected the economy. Some firms built up stocks in the run-up to the end of March – of these, some are being run down and some maintained. Vehicle production was affected by planned seasonal plant closures being brought forward to coincide with the planned Brexit date.

Early (volatile) monthly estimates suggest that GDP contracted by 0.4% in April, compared with March. Manufacturing output fell by 3.9%, its largest monthly fall since June 2002. The largest downward contribution to this fall was within transport, notably vehicle manufacturing which fell by a record 24%. Services sector output – which makes up most of the economy – remained flat between March and April 2019.

Both imports and exports of goods fell in April – exports by 8% and imports by 13%. (It is worth noting that the monthly trade figures are volatile.)

Some larger manufacturing businesses report increased difficulties in convincing clients to commit to new contracts during May. This was mainly because of already high levels of inventories following stockpiling in advance of the original Brexit date.

What is expected to happen next?

The Bank of England’s Monetary Policy Committee voted to leave interest rates unchanged at 0.75% at its June meeting. The Bank has forecast flat GDP growth in April to June, compared with the previous quarter. The committee suggested that risks to UK economic growth have increased recently – partly because of the effect of global trade tensions, and partly because of a higher perceived risk of a shock to the economy from a no-deal Brexit. Mark Carney, the Bank of England Governor, said recently that it was more likely than not that the committee would provide some stimulus to the economy in the event of a no-deal Brexit.

Independent economic forecasts predict the UK growing at around 1.4% in both 2019 and 2020, on average. It’s worth noting that these forecasts tend to assume an orderly exit from the EU. The economic effects of a no-deal Brexit are hard to predict, but as the Library’s briefing on no-deal explains, there are some significant risks in both the short and long terms.

Looking beyond economists, a slightly higher proportion of people are positive about their personal financial situation over the next year, than are negative. However, the majority are negative about the general economic situation over the next year.