After months of doom & gloom predictions, the British economy delivered some surprisingly good news last week. Exporters and manufacturers have recorded massive surges in activity, consumers revelled in the summer sales, and tourists took advantage of the plunging pound.
But before we all breathe a huge sigh of relief, we should remind ourselves that nothing has actually happened as yet. Until Article 50 is triggered and Britain’s exit process from the EU is formally triggered, it is business as usual.
The positive economic results reported over the last two weeks have raised business confidence; a crucial factor for an economy to grow. These new figures will hopefully encourage organisations to invest in projects, recruit new staff and take other calculated risks.
Individuals may also be encouraged by the news emanating from various sectors and carry forth plans to invest in residential property or sell and upgrade their family home.
What the August figures show
- bolstered by a Pound still 10% below its pre-referendum peak, exports have been boosted to their highest levels in two years with 21% of exporters stating that business was above normal levels
- according to the Recruitment and Employment Confederation, a quarter of employers plan to increase their workforce, with only three percent planning to cut staff
- the Eurozone economy experienced its highest level of activity in seven months
- retail sales figures for last month from the Office for National Statistics also showed the volume of sales rising by 1.4 percent last month, beating forecasts by 1.2 percent
- the construction sector appears to have stabilised, rebounding from July’s seven-year low
- the Markit Purchasing Managers Index (PMI) for manufacturing jumped to 53.3 in August, the highest in 10 months
- tax-free shopping company Global Blue reported a seven percent year-on-year increase in UK international tax-free shopping in July
The residential property market
House prices have made a slight recovery. The Nationwide House Price Index showed prices increased by 0.6% in August compared with the previous month, and by 5.6% from last year—beating July’s growth rates as a result of weaker supply.
However, the commercial real-estate sector (which includes offices and shopping malls) has fared less well. According to the Wall Street Journal, commercial property prices have fallen, with prices of London offices hit particularly hard.
According to global real estate consultant Knight Frank, September will be a critical month when it comes to indicating the true state of the residential property market.
Speaking to Business Insider UK, Liam Bailey, head of global research stated:
“Recent PMI data reflected the reality that the UK is going to experience a bumpy ride over the next few quarters. That said the outlook seems less tumultuous than was initially expected.
“While a recession for the UK seems a real possibility, what appears less likely is an economic crisis, as was being suggested in the days following the referendum. But just because the worst of the original Brexit predictions for the economy haven’t transpired it doesn’t mean the property market is guaranteed a smooth ride.
“House purchases are a big commitment, and even if the wider economy holds up the property market can still underperform. The extent of this underperformance depends on where you are. In essence the lower the price point, the stronger current market conditions.”
London houses fell by 2.7 percent in August on the previous month, but were up 2.1 percent on the year, according to property website Rightmove. This, along with the weak sterling, has seen an increase in interest from foreign investors. UK based investors can also take advantage of cheaper London property alongside record-low interest rates.
Concluding comments
Experts are cautiously optimistic that the economic Armageddon predicted immediately following the vote to leave may never eventuate. This in turn, is giving consumers, investors and business owners alike the confidence to re-examine pre-Referendum plans.
But challenges could present themselves when Article 50 is triggered next year and trade negotiations, which are likely to take decades to complete, begin in earnest. Over the weekend, Japan issued a strong warning to Theresa May, stating that if certain conditions are not achieved following Brexit negotiations, Japanese businesses will pull out of the UK.
President Obama also dampened spirits when he made clear that the UK would have to ‘wait its turn’ when it came to a future US/UK trade deal.
This is a situation that literally changes day to day. No one reporting in July predicted such positive results for the British economy in August. So the only thing that can be said with certainty is that no one can predict how the unchartered waters of Brexit will pan out.
So perhaps it is best that we all get on with life and business as usual.
Saracens Solicitors is a multi-service law firm based in London’s West End. We have dedicated and highly experienced property and commercial law solicitors who can assist you with any advice you require regarding property and business law. For more information, please call our office on 020 3588 3500.