The Story of Post-Brexit Britain, In Charts
The surprise vote in favor of the U.K. leaving the European Union on June 23 unleashed shockwaves across the global economy, wiping trillions off the value of global assets. The referendum reshaped the British political landscape, and generated fears that the West, more generally, is marching away from globalization, in favor of trade protectionism and stricter controls on immigration. Its immediate impact on the U.K. economy has been more mixed.
With this upcoming Saturday marking 100 days since the referendum, here we tell the story of post-Brexit-vote-Britain in 17 charts.
In the immediate aftermath of the vote, currencies, stocks, commodities, equity indexes, stock futures, and bonds across the world — from Johannesburg to Shanghai — sold off precipitously. The violent price swings unleashed a wave of forced selling as traders around the world cut positions to reduce the risk profile of their portfolios, with echoes of the previous panic in the abyss of the financial crisis.
Sterling plunged 8.4 percent, marking its worst daily fall on record — exceeding the 4.1 percent fall during the Black Wednesday of 1992 — and bringing the exchange rate against the dollar to its weakest level since 1985.
U.K.-listed banking stocks fell as much as 32 percent on the day, and volatility engulfed the FTSE 100.
While financial markets have largely rebounded, when measuring the British currency against its peers, sterling remains well off its level in trade-weighted terms relative to 2015, as analysts have downgraded their forecasts of Britain's growth potential.
The weaker pound makes Britain poorer relative to the rest of the world and is boosting the cost of imports. That's pushing up prices for raw materials and food for U.K. producers — prices that will increasingly be passed on to consumers, squeezing their finances.
The increased uncertainty about the U.K.'s future trade status with Europe, where almost half of its exports are sold, means business confidence is febrile.
So firms have curtailed investment plans.
That weaker U.K. outlook means the share prices of banks that rely more on the domestic economy, such as Lloyds Banking Group Plc, are way below their pre-Brexit levels compared with a more geographically-diverse Barclays Plc.
In August, the Bank of England cut interest rates for the first time in more than seven years while announcing a raft of other stimulus measures in a boost to borrowers. The moves finally helped to make one of the most boring U.K. economy charts slightly more interesting.
However, U.K. government bond yields fell to record lows following the BOE's rate cut, delivering a blow to pension fund managers who are struggling to meet return targets while their liabilities balloon.
As inflation projections have soared, in part due to rising import-price pressures, analysts predict lower investment and hiring plans will hit demand. As a result, the median estimate of economists surveyed by Bloomberg for U.K. GDP growth in 2017 has nose-dived.
Still, the U.K. Citigroup Economic Surprise Index, which measures how data comes in relative to expectations, has jumped since the Brexit vote in a sign that many official figures in the short term have been come in much better than the market has anticipated.
In particular, retail sales have maintained their growth.
As has business sentiment, as shown by Markit's composite indicator, which includes services, manufacturing and construction.
Part of the reason why the economy has performed better than expected is that consumer confidence has been resilient. Britons shrugged off Brexit concerns as it became clear the pre-referendum forecasts of doom and gloom were over-egged. Another place this can be seen is in the housing market, with a measure of potential demand stabilizing since the vote.
However, going forward, as inflation erodes consumers' finances next year, shoppers don't have much of a buffer. The U.K.'s household savings ratio, which shows how much of their disposable income Britons squirrel away, is historically low while debt levels remain high. With little to fall back on, consumers may opt to cut back spending.
The U.K.'s large twin deficits — in the government's budget and the nation's current account — also pose risks for the future. Weaker growth means lower tax receipts, exacerbating the government's attempts to improve its finances. Meanwhile, Britain's historically high current account deficit — or the difference between money coming into country and money sent out — needs to be funded by inward investment, leaving the country vulnerable to further changes in its economic prospects.
That may help explain why the FTSE 100 and sterling have been among the worst-performing asset classes this year.
There's much for policy makers to mull over as they consider further stimulus measures. U.K. officials must be mindful of the risk that further monetary easing might fuel asset bubbles and worsen the funding headwinds facing pensions and insurance companies, while greater government borrowing might challenge the Treasury's debt-reduction targets.