Business

Economists warn worst of Brexit fallout yet to come

Despite recent positive economic data, the worst may still be to come following the Brexit vote, economists have warned
Despite recent positive economic data, the worst may still be to come following the Brexit vote, economists have warned Despite recent positive economic data, the worst may still be to come following the Brexit vote, economists have warned

A SURPRISE jump in retail sales and a strong batch of employment data may not be enough to stave off a Brexit vote blow to the economy in the third quarter, economists have warned.

A recent slew of official data covering the first month after the Brexit vote suggests the UK economy is fairing better than initially expected.

Warm weather spurred retail sales towards a higher-than-expected rise of 1.4 per cent in July while those on jobseeker's allowance also tumbled 8,600 to 763,000 between June and July.

However, Samuel Tombs, chief UK economist of Pantheon Macroeconomics, is cautious about reading too much into this week's figures.

"The labour market data is from the second quarter rather than the third," he said.

"The claimant count fell slightly but I wouldn't have expected firms to have reduced their headcount greatly - there is going to be a delayed response (to the Brexit vote) from the labour market."

He said upcoming reports on the construction sector and industrial production for July would provide the best indication as to how Brexit uncertainty is impacting the economy and whether or not the UK is heading for a slowdown in the third quarter.

Suren Thiru, head of economics at the British Chambers of Commerce (BCC), said there is still not enough economic data to go on but he expects third-quarter growth to be subdued.

"While we saw a pick-up in retail sales in July, this could unwind in the coming months as the expected rises in inflation start to weaken consumers' spending power," Mr Thiru added.

"Labour market data lags other economic indicators so is unlikely to give a clear indication of economic activity in the third quarter."

He said surveys also suggest that business and consumer confidence had taken a significant hit last month following Britain's decision to ditch the European Union.

The Markit Flash UK Composite Output Index in July showed the UK economy has slumped at its fastest rate since the financial crisis, hitting its lowest level since April 2009.

Last month's YouGov/CEBR (Centre for Economic and Business Research) Consumer Confidence Index fell to its lowest point in three years.