Five charts that show what we learned about the UK economy in June

 
Jasper Jolly
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Gather round: here's what we learned about the economy in June (Source: Getty)

It has been quite a month for the British economy.

Four weeks ago most people thought Prime Minister Theresa May would have a massive majority in Parliament by now.

Meanwhile, expectations of monetary policy change at the Bank of England were measured in years, not months, when the month started. No longer.

And we finally ticked off a year since Brexit (in charts here). The UK economy performed with remarkable resilience at the end of 2016, but the signs of strain are now starting to show, with services output growth at 0.1 per cent revised down further for the first quarter in data published today by the Office for National Statistics (ONS).

Here are five charts showing some of the things we learned in June.

The biggest news of the month – perhaps even of the year – has been the rapid rise in consumer prices.

The consumer price index grew by 2.9 per cent in the year to May. Bank of England governor Mark Carney will be readying his pen next month: he is obliged to write to the chancellor Philip Hammond if inflation is more than a percentage point away from the two per cent target.

That has prompted big tensions in the rate-setting monetary policy committee (MPC). Three out of eight members voted for an increase in bank rate, shocking markets. Then the Bank’s chief economist, Andy Haldane, and even Carney himself, appeared to open the door to a rate hike in August – although some sceptics remain.

The Bank has its stark, numerical inflation target for (relatively) good reasons, but we should not forget inflation is a big determinant of our living standards.

Consumers now appear to be feeling nervous about the prospects for the economy. GfK’s closely watched measure showed confidence falling to its lowest point since the immediate aftermath of the referendum.

There is little doubt that Britons are starting to feel the inflationary squeeze, with wage growth lagging behind prices.

It’s undoubtedly a crude measure, but it is striking that of the last three Prime Ministers, those who called an election when real wages were falling lost their parliamentary majorities. It is not a difficult line to draw between pressure on incomes and political discontent.

Meanwhile, consumer spending was the main driver of healthy growth in the aftermath of the Brexit vote; if that driver disappears then the implications for the economy (and for politics) are not reassuring.

Most people's disposable incomes may be falling, but it seems we are trying to scrape together the cash to sustain our living standards. Figures published today by the ONS showed the savings ratio, the proportion of resources households save rather than spending, continued its fall to a fresh record low.

Meanwhile Bank of England figures yesterday showed borrowing continues to rise faster than income. This could help to sustain demand in the economy in the short run, but longer-term it will prove to be unsustainable.

Yet if the storm clouds are looming for the consumer and in our politics, businesses are remarkably sanguine.

Part of the reason for relatively upbeat findings in confidence surveys and purchasing managers' indices (PMIs) is the relative stability of demand in the past few months.

But some businesses have had a genuine boost from the decline in the value of sterling since the Brexit vote. The pound is around 13 per cent less valuable against the euro than it was a year and one week ago, making exports particularly attractive.

That has boosted exports further, with the Confederation of British Industry's industrial trends survey showing manufacturing order books at a 29-year high.

Manufacturing and production only accounts for 14.6 per cent of measured output, however, so the decline in services output is a worrying sign.

Read more: Brexit a year on: Four graphs that show how the economy responded

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