Sterling slump after Brexit boosts UK tourism

Aug 23, 2016

Spending from Japanese tourists up 96 per cent as holidaymakers take advantage of the drop in the pound

Page 1 of 34Sterling slump after Brexit boosts UK tourism

The vote for Brexit and the slump in the pound that followed has had a dramatic effect on the UK tourism industry.            

Figures from tourism tax-refund company Global Blue show declared spending in Britain by overseas visitors rose seven per cent in July year-on-year, reports Sky News.

The biggest increase came from tourists from Japan, who spent almost double (96 per cent) the amount of the same month last year. They were followed by Indonesian travellers, who splashed out 88 per cent more.

Topping the table for overall spend was China, with 13 per cent more. That accounted for 32 per cent of the total.

Global Blue's report follows figures from travel researcher ForwardKeys, flight website Opodo and accommodation site Airbnb reporting a rise of as much as 42 per cent in UK bookings from Europe. Visits from the US were also up markedly year-on-year.  

Making spending easier for overseas visitors is the drop in the pound, which, amid predictions of an economic hit and a cut in base interest rates closer to zero by the Bank of England, has slumped against all major currencies since the referendum, reducing the cost of holidays to the UK.

Sterling is down eight per cent against the dollar - it has been as much as 14 per cent lower - while it has dropped ten per cent to the euro and more than 16 per cent against the Japanese yen.

This has also made it more expensive for UK holidaymakers to travel abroad, which, together with factors such as global terror attacks, is prompting a rise in "staycations".

"Confidence among English accommodation providers is at a record high for the summer holidays", says a survey by Visit England reported in the Daily Mail.

The World Travel and Tourism Council says the UK sector will outstrip global average growth in 2016, up by 3.6 per cent for the year as a whole.

But the BBC reports the trade body foresees weaker growth towards the end of the decade as a result of the vote for Brexit, as diminished spending by domestic holidaymakers results in 75,000 fewer jobs being created than was forecast at the beginning of the year.

City economists much more optimistic on Brexit

22 August

City economists are sounding a much more optimistic note and revising economic forecasts upwards for the UK after the vote for Brexit.

A sharp slowdown in growth this year and next is still being predicted, but most big banks and independent analysts say it will be much less severe than first feared and that a recession will be avoided.

The Treasury's latest study of City forecasts reveals an average prediction for the economy to grow by an average of 1.6 per cent this year and 0.7 per cent in 2017, says the Daily Telegraph. This is down from the 2.2 per cent of last year but shows a sharp upward change compared to last month, when on average, the numbers pointed to growth of 1.5 per cent in 2016 and 0.5 per cent next year.

Before the referendum, many observers, including the Bank of England, predicted a Leave victory would prompt a recession - at least two consecutive quarters of negative growth.

Since then, however, there has been a host of more positive data. Last week, the Office for National Statistics reported unemployment fell again immediately prior to the vote in June and crucially, that the jobless claimant count had fallen in July.

Notably, the official statistics showed retail sales advanced strongly in July. Transaction volumes were up by close to six per cent and UK shoppers spent £7.4bn each week, The Sun reports.

"Most firms in the UK are domestically focused, so if the consumer sector is looking good, then the feared hit to investment might not be as great as was expected," said economist Martin Beck at the EY Item Club.

"More than 17 million people voted to leave the EU and they are all consumers. It is an odd thing to say those people would suddenly turn around and say, 'Oh my God what have I done? I’m going to cut spending.'"

Retailers have also been boosted by an influx of tourists and a rise in UK holidaymakers opting for a "staycation" as the pound's slump boosts the spending power of overseas visitors and makes trips abroad more expensive for Brits.

The Sun says the tourist industry could be set for a record-breaking year that would see it take in £130bn.

But while the likes of Barclays, Citigroup and others have significantly improved their estimates, others remain gloomy.               

Nomura, for example, regards the post-referendum data as coming too early to draw conclusions and is holding firm on its call that the economy will shrink 1.7 per cent next year, as the sterling fall sends inflation soaring above wage increases and squeezes spending.

UK runs budget surplus in first post-Brexit month

19 August

The UK government ran a budget surplus in July, the first full month since the EU referendum result in June that forced a rethink on austerity.

Tax receipts exceeded government spending by almost £1.5bn, report the Office for National Statistics (ONS). Excluding the contribution of taxpayer-backed banks, the surplus on spending stood at around £1bn.

Taken as a sign of the strength of the UK, the figures present something of a mixed bag.

Corporation tax receipts were mostly responsible for the positive borrowing total and came in at £7.5bn for the month, the strongest reading for five years.

In the wake of the vote for Brexit, that will be taken as a reassuring sign that British businesses have been growing profits steadily, leaving them well placed to deal with the economic headwinds ahead.

That there was a surplus at all is positive: some analysts feared weaker growth had prompted a net deficit in what is typically a strong month for tax income, notes The Guardian.

On the other hand, the public finance boost is distinctly underwhelming. Last year, the net surplus excluding banks was £1.2bn - and a Reuters consensus estimate had predicted a gain of £1.6bn.

Lower revenues from individual income and tobacco taxes were cited as reasons for the drop. Officials added that month-to-month figures can be erratic depending on when tax is paid.
So what does it mean for the government's borrowing targets? In short, not a lot.

The ONS says that total borrowing for the financial year up to the end of July stood at £23.7bn, more than 11 per cent lower than last year and the best first three months since 2008.

It is still lagging behind its targets set out at the last Budget, however, although Chancellor Philip Hammond, ahead of the economic hit almost everyone expects to result from Brexit, has said he is abandoning the pursuit of an overall surplus by 2020.

Chief secretary to the Treasury David Gauke said: "With the public finances in surplus in July, our economy starts from a position of strength to face any economic turbulence following the vote to leave the EU.

"As we keep working to cut the deficit, we are well-placed to handle any challenges and seize the opportunities as our economy adjusts. We are determined to build on our economic strengths to ensure Britain is a country that works for everyone."

Retail sales surge completes more positive post-Brexit picture

18 August

Earlier this week, The Times, among others, reported market nerves ahead of an abundance of hard data that would reveal "the truth" about the hit to the economy following the vote for Brexit.

Today, the last of three key official reports in as many days revealed retail sales bounced back with a bang last month, despite the apparent hit to consumer confidence caused by the referendum result.

Excluding petrol, retail sales rose 1.5 per cent year-on-year, reversing a modest slump in June, reports the Financial Times. Transaction volumes jumped 5.4 per cent, up from the 3.9 per cent annual growth in June and ahead of the rate in May.

Economists had expected no change in activity and only a fractional 0.3 per cent increase in sales.

The Office for National Statistics said the key factor influencing the trend is the weather: a wet start to the summer in June dampened consumer demand, while a much warmer July had shoppers restocking summer wardrobes.

Continued discounting is also helping, reducing the cost of goods by an average two per cent year-on-year, while The Guardian adds the slump in the pound boosted tourist spending.

Coupled with the surprisingly strong unemployment figures yesterday, which confounded gloomy forecasts with a fall in the claimant count, the data paint a picture of an economy that is proving resilient in the face of headwinds.

On Tuesday, inflation reports showed prices had risen to a near-two-year high in July. If the slump in the pound stokes this further, it could weigh on retail sales in the months ahead.

Ratings agency Moody's is also optimistic, says the Daily Telegraph, predicting the UK economy will "not go anywhere close to a recession".

Moody's does expect growth to slow as a result of declining business investment and consumers putting off large purchases during a period of post-referendum uncertainty, but it predicts expansion will remain positive at 1.5 per cent this year and 1.2 per cent next.

In addition, Markit reported that after the swift appointment of a new government and Bank of England action, consumers are feeling much more confident now than in the immediate aftermath of the Brexit vote.

Perception of how their own finances will perform over the next year were scored at 49.8, in line with a reading of 50 that indicates things will remain roughly unchanged, says the Times.

Shock fall in unemployment confounds Brexit gloom

17 August

Today marked the second release of hard post-Brexit vote economic data in as many days – and it has painted a much more positive picture than had been expected.

In its update on unemployment trends, the Office for National Statistics (ONS) said the number of people claiming jobless benefits fell by 8,600 in July.

This was the first drop since February and suggests "the Brexit vote did not deal a major blow to employer confidence", says The Guardian. In total, 763,000 people claimed unemployment benefits last month.

Almost everyone had expected at least a modest rise, with a Reuters' survey of experts giving a consensus forecast of 9,500 more people claiming.

There are some caveats, however. The latest data was measured on 14 July, "three weeks after the referendum, meaning it might not reflect the full extent of any post-Brexit fall in hiring", Reuters says. It is also too soon for any job losses to show up in the claimant count.

However, there is no denying this has confounded post-referendum gloom and expectations of a recession.

Samuel Tombs, an economist with Pantheon Macroeconomics, said the claimant count would need to be about 80,000 higher on average in the third quarter to signal a recession. This would equate to average month-to-month rises of 40,000 claimants.

The ONS figures also showed the number of permanent vacancies fell by 7,000 over the three months to July.

This is in line with a report previously published by the Recruitment and Employment Confederation, which found new permanent job listings dropped to a seven-year low last month. This was offset by a rise in temporary job placements.

That was taken as evidence that business confidence was down post-referendum while actual demand and activity was holding up.

The ONS report also gave new figures for April to June, during which the unemployment rate held at 4.9 per cent, the number of people in employment hit another new all-time high of 31.7 million and wage growth edged up to 2.4 per cent.

Brexit vote sparks surprise rise in inflation in July

16 August

Inflation in the UK ticked up slightly in July, according to official figures giving the first indication of the effect of the pound's slump since the vote for Brexit at the end of June.

The UK's vote to leave the EU has seen sterling fallen 13 per cent against the dollar, amid worries the economy could suffer and interest rates will stay at record lows for longer.

The drop has already pushed up prices for a range of products from cars to craft beer, according to various reports.

Even despite a near-20 per cent fall in the price of oil last month, this pushed up annual consumer price inflation to 0.6 per cent compared to last year, the Office for National Statistics (ONS) said this morning.

This is above the 0.5 per cent predicted by analysts, who expected an oil-related fall in energy costs to hold inflation at its June level, reports The Guardian. It's also the fastest increase since November 2014.

The ONS says the rise in motor fuels relative to last year, along with increases for alcoholic drinks and accommodation such as hotels, together with a smaller fall in food prices, all contributed to the July jump.

The alternative retail prices index of inflation – which governs how much train fares can rise next year - saw a faster rise to 1.9 per cent from June's 1.6 per cent.

Inflation is now predicted to soar in the coming year, which could eventually bring pressure to raise interest rates.

This expectation saw the pound recover some of its overnight losses, says the Financial Times, with sterling adding 0.4 per cent to reach $1.2993.

The pound's plunge may yet resume, however, ahead of more official data this week that the Daily Telegraph says will give the first "hard data" on the economy since Brexit. This includes unemployment figures on Wednesday and retail sales on Thursday.

A report published today by the Resolution Foundation think-tank predicts the economy will come under intense pressure in the wake of the Brexit vote.

The study said the negative effects would easily outweigh any modest gains in wages resulting from lower net migration, a key issue for many who voted to Leave, says the FT.

Resolution says wages for lower-paid Brits could rise by only 0.2 to 0.6 per cent in the next two years – far lower than the two per cent slide in wage growth predicted by the Bank of England.

Page 1 of 34Sterling slump after Brexit boosts UK tourism

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