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No 614992

Britain ended 2016 as the strongest of the world’s advanced economies with growth accelerating in the 6 months after Brexit to hit a 17-month high, showing that the economy had grown by 2.2 %.  This demonstrated that the Brexit doomsayers had got it wrong and far from slowing down after the Referendum in June, the British economies growth had improved.  The GDP grew at 0.3% and 0.6% in the first two quarters of 2016 compared with a growth of 0.6 % and an estimated 0.5% in the final period.  

Andrew Haldane Chief Economist, at the Bank of England suggested that economic forecasters were facing a “Michael Fish moment” over their mistaken predication.  He warned that inflation would however grow and that it would squeeze household incomes in 2017 and that a slowdown was likely.  The predicted growth from the bank for 2017 was 1.4% meaning that there would be a substantial reduction in growth from the 2.2 % from 2016. If that were to be correct this would put UK in the middle of the G7.  Still way off from the predicted collapse.

James Knightley, UK Economist at ING financial markets said that the figures demonstrated, “that the UK Economy had strong momentum” going into 2017.  In reality, the UK is much more resilient than many had predicted.  Confidence returned and experts strengthened helped largely by weak Sterling.

Not all the news is good news however, as the weak sterling though great for the balance of trade figures it has had a dire consequence in relation to imports thereby impacting on inflation.  Quarterly sales at Walgreens Boots, Alliance for example, fell for the first time in 4 years in the final quarter of 2016 and this was put down to a severe devaluation in the British pound as well as the Mexican peso.  Walgreens main market outside the US is the UK and as such the effect of weak sterling has had substantial negative impact upon its overall performance.  

The same applies in relation to the Danish company Lego, who stated that they would be raising their prices by 5% in 2017 due to the fact that there was a weak pound.  In October 2016 Unilever, the food manufacturer had threatened to increase the price of its products to British retailers by 10%.  This would have effected products such as Marmite, Hellmann’s Mayonnaise and PG Tips teabags.  This created a row with the main supermarkets who refused to absorb the cost hike.  Eventually an agreement was reached with the main supermarkets and Unilever backed down.  

Meanwhile Apple, very quietly and without much uproar increased its UK prices by 20% and the Swiss company Mondelez International increased the price of its chocolate bar Toblerone by a similar amount.  Meanwhile, Cadbury’s in an attempt to keep prices the same reduced down the weight of the chocolate bars that they sell.  A 400 gram bar for example was reduced to 360 grams and a 170 gram bar was reduced to 150 grams. Less product for the same price, is a price hike through the back door.  

The story in relation to whether the UK Economy glass, is half empty or half full, depends very much on the prospective that you are looking at it from.  In December 2016, it was reported that the number of people in work had fallen by 6,000 to 31.76 million people compared to the previous 3 months before.  Many saw this as a sign that cracks were starting to appear.  If this trend were to continue you would potentially have a situation where there would be increasing unemployment whilst inflation would also be rising at the same time, thereby causing major problems to the economic growth of the country.  Add to this uncertainty within the markets causing volatility and you have all the ingredients for a perfect storm starting to build.  

When all of the indicators are therefore considered, on the one hand it may well seem that the growth figures suggest that the economy is doing well, outstripping its competitors, however if one scratches underneath the surface, one can see problems that may be rife ahead.  

These problems are perhaps best seen through the prism of the UK housing market.  Prime property in Central London has reached an unusual place. Only 1 in 10 properties on sale are reported to have offers.  This would have been unheard of before the Referendum vote.  Even though, there is much talk about overseas investors re-entering the market, this is yet to materialise as uncertainty continues to discourage investors. For many lower prices may be a good thing and a realignment long overdue.  For others, it bodes ill for the future.  So is the UK economy the strongest in the world?

Most likely not.  The decisions and agreements reached during eth next 2 years will help shape what the future holds.  On one hand the opportunities are great but on the other so are the risks.

Take your pick.  Is the glass half full or half empty?

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