Trying to work out what has happened to the UK economy following the Brexit vote is an economist’s nightmare, with figures constantly being published, some positive and some negative.For example, the stockmarket is now doing well, having suffered a sharp fall after the vote. Construction was supposed to be affected by the uncertainty following the vote, yet appears stable, and retail sales spending in July rose 4%.
Sterling has slumped by approximately 10% from around its peak of $1.50 before the vote to a low of $1.29 recently but is this good or bad? For those who went on holiday abroad in the summer but had not taken the precaution of buying their foreign currency in advance, it was bad as it is for importers. However it should eventually be good for exporters although many exports of goods contain imported components.The UK’s trade deficit narrowed in July to £4.5bn as exports rose and imports fell. However although the post-Brexit fall in sterling might have had some impact on these figures, it is not likely to have been large since it takes far longer than a month for exporters to respond to a changing exchange rate since they need to find new markets and invest in machinery to significantly increase output. Similarly importers are locked in to contracts and cannot quickly replace imports with domestically-produced goods..
What is most important in the long term for UK growth and prosperity is what happens to investment and it is still too early to assess what the impact of Brexit will be on both domestic and foreign investment into the UK.