Analysis: No Brexit economic hit yet, but it’s coming

We are living in a world of ever-shortening news cycles. And so the script demanded that the first July economic figures for the United Kingdom, published this week, should show the first signs of a "Brexit hit". In the event, they didn't, with the 1.4 per cent monthly increase in British retail sales in July taking analysts, in particular, by surprise, while figures for the jobs market were also fairly benign.

It would be nice to think that this indicated that the economic hit from Brexit will be less than feared. Unfortunately it doesn’t. The exact timing and extent of the hit on the British economy are impossible to forecast. But the inevitable conclusion remains that there will be a significant hit to UK growth and that sonner rather than later this will feed through to the high street.

For the moment it is a case of “Carry on Shopping”. The good July weather led to a rise in clothing and footwear spending and there are signs that tourists also upped their outlay, encouraged by the increased buying power of other currencies in the UK.

Consumer downturn

But a consumer downturn is surely on the way in the UK , for two main reasons. The first is that survey evidence clearly shows businesses are going to cut back hiring plans – and some will move out of the UK altogether. This will hit employment. The second is that inflation will pick up as a weaker sterling feeds through to higher import prices.

Other data published this week clearly showed strong upward pressure on import prices. It will cost more for the British consumer to buy German cars, French wines and Irish beef. As purchasing power falls, so will spending.

It could be next year before this is all fully reflected in British consumer spending. But it is very hard to see a Brexit hit being avoided. Even the short-term impact of Brexit will unwind slowly enough, but the storm is already brewing. And beyond that lies the huge longer-term uncertainties that will take years to unfold.