First hard data for UK economy post-Brexit

This week is being seen as an important week by many in the markets for evidence of the impact of the Brexit vote on the UK economy. We have the first hard data for July for inflation, for unemployment, for retail sales and for the public finances.

Sterling has fallen further against a background of a package of monetary policy easing measures and the disappointment of the latest gilt auction, reinforcing the prospect of further monetary policy easing, with Base rates likely to be reduced to 0.1% from their present 0.25% in the coming months, and raising the likelihood of fiscal policy measures in the forthcoming Autumn Statement. Certainly prospects are that sterling will remain weak against this background and little expectation of clarity regarding the UK's Brexit negotiating position.

But I don't believe in reality that there will be much light shed on the initial impact of the Brexit vote on the UK economy this week. The plunge in the pound is unlikely to have fed through in July's CPI numbers much, with base effects and a sharp rise in petrol prices predominating. The excellent UK economists at Oxford Economics expect the inflation rate to remain at 0.5% y/y. I personally believe the impact further out will be more modest than consensus. Unemployment is a lagging indicator so expect the rate to remain at its near 11 year low of 4.9% or even fall back slightly.  Perhaps the most eagerly expected release will be retail sales, given the importance of consumer spending for driving UK growth. Key survey data has given us conflicting stories. The official data has been especially volatile of late and I would anticipate we will not be able to conclude anything much because of the noise.

The plunge in sterling should be very positive for the UK economy as we aim to boost exports particularly in light of poor current account data. Anecdotal data shows a very strong upturn in tourism from foreigners taking advantage of a cheap pound and increased staycation.

The feelgood factor from our sporting successes continues too. The UK amazingly lies second in the Olympic medals table equal to the combined total of Germany and France, and ahead of China. It could even be more successful than in London 2012! The success of the National Lottery, introduced by the Major government, has contributed most of the £350m into UK sport for the Olympics and Paralympics. Money is focused on those sports where we are successful. But the fact is that the number of sports we are successful in is increasing. We have also done well in swimming, diving and gymnastics this time as well as in rowing, sailing, cycling and equestrian where we  lead the world. The National Lottery may be a regressive tax in effect but this is not a reason to abolish it.