The United Kingdom’s vote to leave the European Union shocked the country’s economy in June, but the latest data revealed strong signs of a rebound even as a slowdown in growth and further cuts of interest rates from the Bank of England loom on the horizon.
Britain’s service industry report on Monday showed a marked increase in August on a month-on-month basis. Data released the previous week for the manufacturing and construction sectors were also back on the uptrend mirroring the report.
The data firm Markit said that the season from July to September will likely still see the British economy above recession levels according to its survey. This is in opposition to Markit’s and other economists’ data that the third quarter would pull Britain into recession.
The rebound in August will still be unable to pull the country out of its growth slump through to September, with growth at only 0.1 percent as opposed to 0.6 percent which the country experienced in the second quarter of this year.
The projections of the Bank of England remain on target with its forecasts last month as it cut interest rates for the first time since 2009, and with many expecting the bank to make another cut before the end of the year.
“August’s Markit/CIPS services PMI confirmed that the collapse seen in July was a temporary reaction to the shock of the vote to leave the EU. But we doubt this will prevent the MPC from easing monetary policy further in November,” according to Scott Bowman, an economist at Capital Economics.
The pound sterling ended at a seven-week high versus the dollar due to strong results of the services PMI that beat analysts’ expectations polled by Reuters. PMI went up to 52.9, similar to pre-referendum levels, after going down to 47.4 in July, its lowest in seven years.
The decline of the pound increased exports and forced people to travel locally during the summer as the cost of holidaying abroad went up.
Chris Williamson, an economist for Markit, said that there are still challenges for Britain as it breaks off from the EU with the negotiations for a trade deal. The process may extend up until 2019 or even longer.
“Many companies remain worried about the outlook and how the economy will fare in the event of Brexit, suggesting that political and economic uncertainty is likely to prevail in coming months, subduing growth,” Williamson said.
The EEF manufacturers body had its weakest investment outlook on Monday since late 2009, with the automotive industry data revealing low private purchasing of vehicles even though businesses were buying for their fleets.
Confidence of the services PMI was at a four-year low with increasing tension on prices as companies felt the pressure of the weaker currency.
The debate in Parliament over Brexit and agreements for access to EU markets while balancing concerns are expected to heat up and affect the rebound once again.
“The political debate over Brexit is beginning to ramp up again with tensions in the cabinet emerging … and the U.S. and Japanese interventions at the G20 making it clear that the UK still faces significant challenges in managing the Brexit process,” said BNP Paribas economist Dominic Bryant.