We may well never know the true extent of the impact of the EU referendum outcome on the British economy, markets and ultimately standards of living. This may not be the most satisfying conclusion, but this uncertainty is one which policy-makers will have to grapple with. As to the bigger question of whether the UK is better off today or will be better off in years to come when one takes into account not only the impact on the economy but also broader, less tangible issues such as sovereignty, the answer is and will likely remain even more subjective. In any case, available data paint a patchy picture of the UK economy post-referendum. Construction and services have been harder hit than manufacturing. Retail sales were strong in July thanks in part to a robust labour market and plentiful lending. While this defies the collapse in consumer confidence temporary factors may also have been at play. The residential property market at a national level has been softer but resilient post referendum. Mortgage lending remains depressed but government policies are for now more likely to blame. The commercial property market has been harder hit. Sterling’s 10% collapse since the referendum, following a 10% depreciation between November and June, is seemingly supporting economic growth and demand for UK assets even if history suggests that it is no panacea. Its inflationary impact has so far been very modest but the risk is a squeeze on profit margins and real wages. At the same time sterling’s collapse has tangibly eroded the UK’s net wealth, at least when expressed in foreign-currency terms – a fact largely ignored by policy-makers and the media. I would expect the BoE to continue favouring monetary and credit policies which explicitly help spur lending, spending and investment and, implicitly at least, help cap sterling. While this may not translate into another policy rate cut or round of QE near-term, the BoE is likely to keep this option firmly on the table if the UK economy fails to return to trend in the next six months.

1. UK economy post Brexit – for richer, but mostly for poorer
 We may well never know the true extent of the impact of Brexit on the British economy, markets
and ultimately standards of living. This may not be the most satisfying conclusion, but this
uncertainty is one which policy-makers will have to grapple with.
 As to the bigger question of whether the UK is better off today or will be better off in years to
come when one takes into account not only the impact on the economy but also broader, less
tangible issues such as sovereignty, the answer is and will likely remain even more subjective.
 In any case, available data paint a patchy picture of the UK economy post-referendum.
Construction and services have been harder hit than manufacturing. Retail sales were strong in
July thanks in part to a robust labour market and plentiful lending. While this defies the collapse
in consumer confidence temporary factors may also have been at play.
 The residential propertymarket at a national level has been softer but resilient post referendum.
Mortgage lending remains depressed but government policies are for now more likely to blame.
The commercial propertymarket has been harder hit.
 Sterling’s 10% collapse since the referendum, following a 10% depreciation between November
and June, is seemingly supporting economic growth and demand for UK assets even if history
suggests that it is no panacea. Its inflationary impact has so far been verymodest but the risk is
a squeeze on profit margins and real wages.
 At the same time sterling’s collapse has tangibly eroded the UK’s net wealth, at least when
expressed in foreign-currencyterms – a fact largely ignored by policy-makers and the media.
 I would expect the BoE to continue favouring monetary and credit policies which explicitly help
spur lending, spending and investment and, implicitly at least, help cap sterling. While this may
not translate into another policy rate cut or round of QE near-term, the BoE is likely to keep this
option firmly on the table if the UK economy fails to return to trend in the next six months.
Still some head-scratching over impact of Brexit on UK economic activity
Quantifying with any kind of certainty and objectivity the Brexit vote’s impact on the British economic
landscape is, in my view, at best a complex task and at worst a near-impossible one. This, in turn, is likely
to cloud our forecast of financial markets, Bank of England (BoE) monetary policy and the government’s
fiscal plans.
As a consolation I am seemingly not alone in this thinking. British policy-makers, professional bodies and
the media have oscillated between neutral, negative and positive assessments of how the UK economy has
fared in the past two months and is likely to perform going forward. Following recent data releases the tone

2. has brightened, but it was only three weeks ago that the Bank of England (BoE) announced an
unprecedented package of measures to reflate the UK economy. These included a halving of the BoE
policy rate to a new record low of 25bp, a new Term Funding Scheme to reinforce the pass-through of the
cut in policy rate, the purchase of up to £10bn of UK corporate bonds and a £60bn expansion of its
quantitative (QE) scheme.
Separating the wheat from the chaff
Providing a definitive conclusion on whether the UK is, or will be, better or worse off was always going to be
a challenging exercise. For starters, one needs to differentiate the direct and permanent impact which
Brexit itself has had from the impact of:
 Events not related to Brexit, such as the government’s introduction in April of new stamp duty rules
on buy-to-let homes and the likely ephemeral distraction and feel-good factor from Team GB’s
impressive performance at the Rio Olympics.
 Indirect/temporary factors related to Brexit. For example, much has happened to the British political
landscape since the British electorate voted to leave the EU on 23rd
June – a new prime minister
and cabinet have taken office and the opposition Labour party has imploded (a topic which seems
to receive disproportionate attention in the British media).
These non-Brexit factors and referendum side-effects, which may well wear off in due course, could be
currently shaping popular opinion and in turn the economy, as much as the actual vote to leave the EU.
Going a step further, one needs to ascertain whether any changes in the UK economy are attributable to
Brexit or to international factors – such as changes in commodity prices and global risk appetite – outside
the control of UK households, businesses and policy-makers. Put differently, any analysis needs to
acknowledge that international factors beyond Brexit may be playing an important, or even more important,
role in shaping the UK economy and future policy decisions.
More data will help, but not a cure-all
At the same time, the analysis of the post-referendum UK economy has been largely reliant on surveys and
unofficial or preliminary data. Only a handful of official macro numbers – mainly for retail sales and inflation
– and partial official data for the labour and housing markets – have so far been released for the month of
July.
In any case the impact of Brexit on the UK economy is likely to play out over months, even years, as the
new government has only just started lengthy discussions with multiple partners over the future of the UK’s
relationship with its European and global counterparts. Moreover, the impact of sterling’s sharp
depreciation post-Brexit will take months to fully feed-through to inflation. Any analysis will thus likely need
to be updated at regular intervals to remain relevant.

3. As the outlook for the UK’s trade agreement becomes clearer and more hard data gets released, the
referendum result’s impact on UK growth, inflation and labour market may become clearer. But even then it
is conceivable that changes in the UK economy would have materialised even if the British electorate had
voted to remain in the EU, due to well-entrenched cyclical and structural factors at a domestic level. Either
way, proving what would have happened in this hypothetical scenario is speculative at best.
The UK economy could also have started to change, whether positively or negatively, well before the actual
referendum when then Prime Minister Cameron confirmed on 20th
February that a referendum would
actually take place. It therefore makes sense to gage the UK economy’s performance in the past six
months, not just the past eight weeks. But again the caveats which I highlight above apply.
Putting these numerous caveats aside, we can try to at least get a sense of how UK economic activity has
responded in the past six months, when then Prime Minister Cameron confirmed the referendum date, and
in particular the past two months. A good starting point is an analysis of official monthly and quarterly data
released so far.
GDP was steady in H1 but truer picture will only emerge with Q3 data
Final estimates for Q1 GDP and preliminary estimates for Q2 GDP cover the post-announcement period
but only capture the first week following the referendum1
. Real GDP growth slowed to a rate of 0.4%
quarter-on-quarter seasonally adjusted in Q1 2016 from 0.6% in Q4 2015 but then rebounded back to 0.6%
in Q2 2016 (see Figure 1).
Figure 1: UK GDP growth has been very stable
around 0.5% qoq in the past five quarters
Figure 2: Domestic investment contracted in Q4
and Q1 but oil price fall largely to blame
Source: Office for National Statistics Source: Office for National Statistics
1 Preliminary, second and final estimates of GDP are released over a quarter as more data becomes available. The
final estimate is published in the Quarterly National Accounts. See Office for National Statistics
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Q1
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Q4
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2015
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UK real GDP, quarter-on-quarter % change
(seasonally adjusted)
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-4
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2012 Q4 2013 Q4 2014 Q4 2015 Q4
Business investment
Gross fixed capital formation
quarter-on-quarter % change
(seasonally adjusted)

4. This ultimately tells us very little as quarterly GDP growth has oscillated between 0.4% and 0.6% with
metronomic regularity since Q1 2015. Fixed and business investment contracted in Q4 2015 and Q1 2016
but rebounded in Q2, suggesting no lasting or material impact from the confirmation of a referendum date.
It is more likely that oil and gas companies had reined in North Sea spending following the collapse in oil
and gas prices rather than UK companies delaying or cancelling investments because of referendum-
related uncertainty.
Preliminary Q3 data, due for release on 27th
October, will realistically provide the first birds-eye view of how
the economy fared in the first three months following the referendum. A quarterly number between 0.4%
and 0.6% would point to on-trend GDP growth and a minimal impact from the referendum, in my view, while
growth of 0.3% or below would suggest that the economy lost steam post-referendum. The second
estimate for Q3 GDP, due for release on 25th
November, will again provide greater insight on where the
growth was won or lost.
In the meantime we have to rely on a handful of official, sometimes incomplete datasets for July, namely for
inflation, retail sales and the labour and housing markets, along with unofficial surveys (Markit PMIs, GFK
consumer confidence) and non-government sector-specific data for industry (CBI), retail (BRC) and
housing (Halifax, Rightmove, Nationwide, RICS).
Inflation – Not much so far but imported inflation bogeyman for producers and retailers
It is still very early days to ascertain how a weaker currency will impact inflation in coming months as the
transmission mechanism is rarely immediate given multi-month contractual arrangements between
suppliers, producers and end-retailers. But data for H2 2016 suggest that the 10.4% collapse in the sterling
Nominal Effective Exchange Rate (NEER) since the referendum – even if it is not reversed any time soon –
and higher global commodity prices are unlikely to lead to significantly higher inflation. British producers
and in particular retailers are instead more likely to cap prices in order to retain market share.
This would tie with the Bank of England’s models suggesting a limited pass-through from a weaker
currency to imported and headline inflation. Its aggressive policy prescription certainly doesn’t pre-suppose
that any inflation rise will be large and/or permanent.
The sterling NEER fell about 10% between mid-November 2015 and mid-June (see Figure 3) and
commodity prices rose markedly in H1, albeit from a low base, with the price of Brent crude oil about 35%
increase. This contributed to a reasonably modest 1.5% increase in output producer prices in H1 (see
Figure 4), suggesting that producers tried to slow price increases by capping profit margins and/or their
non-imported cost base (by curbing investment and wage growth for example). This was perhaps even
more evident at the retail level, with headline CPI-inflation, core CPI-inflation and RPIJ inflation of only
0.3%, 0.3% and 0.5% and respectively.

5. Figure 3: Sterling NEER fell 10% in six months
prior referendum…and another 10% post vote
Figure 4: Producer prices rising a little faster on
back of sterling weakness and commodity prices
Source: Investing.com, Bank of England Source: Office for National Statistics
This picture was broadly unchanged post-referendum, with output producer prices up 0.3% mom in July,
whereas measures of consumer and retail prices were broadly unchanged. In year-on-year terms, CPI and
RPIJ-inflation in July rose only incrementally to 0.6% yoy and 1.1% yoy, respectively, from 0.5% yoy and
0.9% yoy in June (see Figure 5). These marginal increases are very much in line with the very gradual
trend increase in the prior 12 months. Core CPI-inflation actually fell to 1.3% yoy in July, in the middle of
the 1.2-1.5% yoy range in place since last November.
The bottom line is that while a weaker sterling and higher commodity prices will drive higher imported
inflation and in turn somewhat higher headline inflation, their main potential impact will be a squeeze on
profit margins, investment (already under pressure from the uncertain outlook for the UK’s trade
arrangements) and wages. The resilience of consumer demand so far, however, will help mitigate this
squeeze.
Labour market strong in run-up to referendum but spectre of inflation
While labour market data for July will only be released on 14th
September, the sector was reasonably
robust in the run-up to the referendum. Real weekly earnings in Q2 rose an annualised and seasonally-
adjusted 4.3% quarter-on-quarter in while the unemployment rate in June remained at its multi-year low of
4.9% (see Figure 6). Moreover the number of people claiming unemployment benefits fell by 8,600 in July,
the first fall since February flying in the face of expectations of a post-referendum surge in the claimant
count.
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100
105
110
115
120
125
Apr 15 Jul 15 Oct 15 Jan 16 Apr 16 Jul 16
Sterling Nominal Effective Exchange Rate
(23 April 2010 = 100)
Refere ndum
date confirmed
Refere ndum
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98
99
100
101
102
103
104
Jan-13 Nov-13 Sep-14 Jul-15 May-16
PPI-inflation (output)
CPI-inflation
UK inflation (January 2013 = 100)

6. However, the concern remains that nominal wage growth could (at least temporarily) fall behind rising
inflation as companies try to remain competitive by curtailing their cost base (see above). This would in turn
eat into workers’ real purchasing power and domestic consumption, including retail sales volumes.
Figure 5: Consumer price inflation still rising only
very slowly
Figure 6: Labour market showed few signs of
weakness pre-referendum
Office for National Statistics Source: Office for National Statistics
Retail sales defying the odds
In a consumption economy such as the UK retail sales data are always going to attract much attention.
Both the value and volume of retail sales, including automobile fuel, dipped in March but then bounced
strongly in April and May, suggesting that the announcement of a referendum date had no material or
lasting impact on retail sales (see Figures 7 & 8).
Perhaps more significantly they resumed their upward march in July with the value and volume of retail
sales (seasonally-adjusted) rising respectively 1.6% month-on-month and 1.4% mom (see Figures 7 & 8).
This is considerably stronger than the previous twelve month averages of 0.1% mom and 0.4% mom,
respectively. Moreover, the growth numbers are similar if we strip out automobile fuel sales (see Figure 9).
In year-on-year terms, the value and volume of retail sales (including automobile fuel sales) were up 3.6%
year-on-year and 5.9% yoy, respectively (see Figure 10).
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1
2
3
4
5
6
Jan-07 Feb-09 Mar-11 Apr-13 May-15
Headline CPI-inflation
Core CPI-inflation
Headline RPI-inflation
UK inflation year-on-year % change
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4
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Jan 13 Nov 13 Sep 14 Jul 15 May 16
Unemployment rate, % (left scale)
Average weekly earnings inc bonuses
constant 2000 prices, 3m/3m seasonally
adjusted annualised growth rate (%)

7. Figure 7: UK retail sales have been robust both
before and after EU referendum…
Figure 8: Both value and volume of retail sales
rose in July
Source: Office for National Statistics Source: Office for National Statistics
These data are aligned with the British Retail Consortium (BRC) Retail Sales Monitor which showed that
the value of retail sales in member outlets in the UK rose 1.9% yoy in July, the strongest growth since
January. Same-store sales rose 1.1% yoy. Strong retail sales also fly in the face of consumer surveys
showing a sharp drop in confidence in July (see Figure 18), supporting the idea that survey respondents
don’t always act in line with their expressed views.
Figure 9: Increase in value of headline retail sales
not due to automobile fuel sales
Figure 10: In year-on-year terms, retail sales
growth getting close to top of its ranges
Source: Office for National Statistics Source: Office for National Statistics
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Sep-13 Jul-14 May-15 Mar-16
Value Volume
UK retail sales, including automotive fuel,
seasonally adjusted (2013 = 100)
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Jun-15 Oct-15 Feb-16 Jun-16
Value Volume
UK retail sales, including automotive fuel,
seasonally adjusted, month-on-month % change
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0
1
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Jun-15 Oct-15 Feb-16 Jun-16
Excluding automobile fuel sales
Including automobile fuel sales
UK retail sales value, seasonally adjusted,
month-on-month % change
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1
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Jan-13 Nov-13 Sep-14 Jul-15 May-16
Value Volume
UK retail sales, including automotive fuel,
year-on-year % change

8. At first glance this would suggest that little has materially changed for most UK households in the wake of
the 23rd
June referendum, with retail sales egged on by reasonably strong labour and credit markets (see
above). However, the unusually warm weather in July (after a particularly wet June) – arguably a temporary
factor – will have likely encouraged consumers to go out and spend, as could have the prospect of higher
prices which also erode the real value of savings. Also, the weak pound – a likely more permanent factor –
has boosted tourism into the UK and in turn likely helped domestic retail sales and conversely encouraged
British consumers to delay or cancel planned holidays abroad. The rally in UK and global equities may also
at the margin have boosted British consumers’ willingness to spend. In any case these data will support the
consumption component of Q3 GDP growth.
Terms of trade improvement should help net exports in theory, less obvious in practice
Sterling’s depreciation helped drive industrial orders in July which should translate into larger exports (and
industrial output) in coming months, particularly for companies which export outside of the EU and are not
prey to the government’s ongoing trade negotiations with EU partners. At the same time, the greater
sterling-cost of imports should result in a degree of import substitution, with the net result a narrowing of the
trade deficit.
But history suggests that the benefits to external trade from even a large one-off currency devaluation are
likely to wear off as increases in companies’ imports and cost base start to erode gains in export-price
competitiveness, even if it this does not become more apparent until next year. Indeed, Figure 11 shows
that the sterling-value of both imports and exports rose sharply in Q2. The result is that despite sterling’s
10% depreciation between November 2015 and mid-June 2016, the UK’s trade deficit on goods and
services actually increased slightly (see Figure 12).
Figure 11: Export and import growth has risen in
tandem despite weaker sterling…
Figure 12: …resulting in a slight widening of the
trade deficit
Source: Office for National Statistics Source: Office for National Statistics, Bank of England
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Dec-12 Oct-13 Aug-14 Jun-15 Apr-16
Exports Imports
UK trade in goods and services, GBP-value,
quarter-on-quarter saar*
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14
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102
106
110
114
118
Dec-13 Oct-14 Aug-15 Jun-16
Sterling NEER (23 April 2010 = 100), left scale
UK goods and services trade deficit 3-month
moving sum, seasonally ajusted (£ bn)

9. Construction and services harder hit than manufacturing
Turning to the supply side of the economy, unofficial data paint a mixed picture with a more competitive
currency unsurprisingly providing more of a cushion for manufacturing than services and construction.
Official manufacturing output data for July are due on 7th
September.
 The services PMI fell by almost five percentage points in the first full month following the
referendum, to 47.4.
 The manufacturing PMI fell by a more modest three percentage points in July to 49.1.
 The Confederation of British Industry (CBI) order book balance decreased to -5 in August of 2016
from -4 in July while the export order books reached a two-year high (of -6). This suggests that
sterling’s depreciation may be feeding through to stronger overseas demand and will ultimately
translate into stronger industrial output.
 The construction PMI was almost unchanged in July at 45.9 but was still down significantly from
around 54 in February and close to 60 at end-2015 with the commercial sector reporting the
greatest downturn.
Figure 13: Services and construction PMIs fell
more sharply than manufacturing PMI…
Figure 14: …which ties with a reasonably resilient
industrial order book
Source: Markit Source: CBI
Lending to consumers strong, mortgage lending still down
The Bank of England is clearly keen to avoid a repeat of the 2008-2009 great financial crisis when lending
and borrowing dried up. Its decision on 6th
July to ease lenders’ capital requirements to free up about
£150bn of fresh lending and its latest package of measures announced on 4th
August are squarely
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Apr-14 Nov-14 Jun-15 Jan-16 Aug-16
Manufacturing
Services
Construction
UK Purchasing Manager Indices (PMIs)
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Sep-15 Dec-15 Mar-16 Jun-16
CBI industriral orders book balance

10. focussed on ensuring that bank lending remains available and cheap. At the same time the BoE will be
hoping that households and companies respond by borrowing and ultimately spending and investing.
It is clearly too early to judge whether the BoE has been successful, but unofficial data from the British
Bankers’ Association (BBA) suggest that consumer credit growth held up nicely in July. Credit card, loans
and overdraft lending continued to grow at about 6% yoy in July, thanks in part to favourable interest rates.
Borrowing by non-financial companies increased £2.3bn in July after falling slightly in the run-up to the
referendum.
However, mortgage lending does not appear as robust. The value of net-mortgages rose only 3% yoy in
July and the number of mortgages approved for new house purchases continued to fall, to 37,662 – the
lowest seasonally-adjusted number since January 2015 (see Figure 15). Whilst the referendum outcome
may have played its part, the government’s introduction in April of new stamp duty rules on buy-to-let
homes is clearly dampening demand for mortgages. This is clearly visible in BoE data up to June which
show that while net unsecured lending held up well in Q2, net secured lending collapsed (see Figure 16).
Unless this trend is reversed in coming months, this could create more visible headwinds for the housing
market. BoE credit and mortgage data for July are due for release on 30th
August.
Figure 15: Mortgage approval numbers in July fell
to their lowest level since January 2015
Figure 16: Unsecured lending robust pre-July, but
legislative changes have hit secured lending
Source: BBA Source: Bank of England
Residential property market softer but resilient, commercial property market harder hit
It is probably too early to ascertain with great confidence whether the referendum had a negative impact on
the UK property market given the multi-month leads and lags in the buying and selling of properties.
Moreover, the government will only publish the official House Price Index (HPI) for July in September.
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BBA mortgage approvals, thousands
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Secured
Unsecured (right scale)
Net UK lending to individuals
3-month rolling sum (£ billions)

11. Based on current data, which admittedly paint a rather patchy picture, the residential housing market has
so far held up reasonably well following the announcement of the referendum and actual referendum
outcome, although there are signs that at a national level price growth has slowed and transaction volumes
are down (see Figure 17). The plentiful supply of cheap credit and robust labour market have likely helped
underpin housing demand and there is anecdotal evidence that the cheaper pound has attracted foreign
buyers. The non-residential property market has seemingly been hit far harder.
 The UK Nationwide average house price index (seasonally adjusted) shows that prices rose every
month since July 2015, by an average 0.4%, with decent increases in both March (+0.7% mom) and
July (+0.5% mom) – see Figure 17.
 The Halifax housing price index is a little more choppy but still points to a broad trend of rising
prices year-to-date, even if prices did fall a seasonally-adjusted 0.9% mom in July. The government
house price index rose a solid 4% between end-February and end-June (see Figure 17).
 The Royal Institute of Chartered Surveyors (RICS) reported that amongst its members 5 percentage
points more saw a house price increase than a price decrease. However this price balance of +5
was lowest survey reading in three years and 12% more respondents predict a decline in house
prices over the next three months.
 Righthmove reported that in July the average asking price of properties coming to market fell 0.9%
mom, after six consecutive months of price gains. However, this is broadly in line with seasonal
patterns – since 2010, the asking price has on average fallen 0.4% mom in the month of July.
Moreover, the worst fears that residential buyers and sellers would pull out of transactions en-masse post-
referendum were seemingly overdone.
 Rightmove concluded that buyer demand in the fortnight following the referendum was comparable
to demand in the corresponding period of 2014 (a non-election year), while the up-tick in the
number of properties coming to market (+6%) almost made up for the 8% fall in the fortnight prior
the referendum.
 HM Revenue & Customs (HMRC) reported that the seasonally adjusted estimate of the number of
residential property transactions decreased only 0.9% mom in July.
 However, RICS said that “across the UK 34% more respondents reported a fall in transactions, with
the monthly pace of decline in both July and June at the fastest since 2008”.
Moreover, the number of non-residential property transactions decreased 7.5% mom in July – the largest
monthly fall in years, according to HMRC. This would suggest that companies were more responsive to the
Brexit vote than residential buyers and sellers.

12. Figure 17: House price growth has cooled
Figure 18: Consumer confidence has fallen off a
cliff but this has not been reflected in retail sales
Source: Nationwide, Halifax, Gov.UK Source: GfK
BoE likely to keep emphasis on credit measures…and implicitly cheap pound
Even if we are able to isolate and quantify brexit’s direct and long-term impact on the UK economy, there is
an important distinction to be made between 1. the impact on flows and stocks measured in sterling terms,
such as the change in the UK’s real GDP, and 2. the impact on flows and stocks measured in foreign-
currency terms.
Sterling’s gain in competitiveness – one of the few undeniable consequences of the Brexit vote – has
seemingly helped support industrial orders, retail sales and the residential property market, in turn likely
minimising any downturn in UK real GDP growth. Moreover, to the extent that a weaker currency boosts
inflation and tax receipts, sterling’s collapse may ease the debt servicing burden of a British government
which had net liabilities of £400bn at end-2015.
These are after all the reasons why policy-makers across the globe are keen to keep their currencies
competitive and in some cases willing to engage in so-called currency-wars. It is therefore unsurprising that
the British government has focussed on these silver linings – reminiscent of Prime Minister Harold Wilson
who in the wake of sterling’s devaluation in 1967 emphasised, rather unconvincingly, the importance of the
“pound in your pocket”. The BoE, which forcefully eased monetary policy at its last policy meeting, also
seems confident that the inflationary impact of sterling’s depreciation will be modest and/or short-lived.
Meanwhile the British media has seemingly been distracted by the Olympics and ongoing saga surrounding
opposition leader Jeremy Corby.
With this in mind I would expect the BoE to continue favouring monetary and credit policies which explicitly
help spur lending, spending and investment and, implicitly at least, help cap sterling. While this may not
translate into another policy rate cut or round of QE near-term, the BoE is likely to keep this option firmly on
the table if the UK economy fails to return to trend in the next six months.
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-1.5
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Nationwide Halifax
Land registry
Month-on-month % change in average UK
house price (seasonally-adjusted)
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-12
-10
-8
-6
-4
-2
0
2
4
6
8
Apr-14 Oct-14 Apr-15 Oct-15 Apr-16
UK (gfk) consumer confidence

13. Weaker pound is no panacea to growth… and has drastically cut UK wealth
Even so a weaker pound is no panacea to the UK’s multiple challenges and government policies will have
to do some of the heavy-lifting. For starters, it is unclear whether the UK’s improved terms of trade
conditions will significantly narrow the trade deficit. At the same time, a weaker pound and a rise in the
sterling-value of imports (30% of GDP) could squeeze the profitability of domestically-oriented companies,
which along with even a modest rise in inflation could dent real wage growth and returns on investments.
More glaringly, both the government and media, with the notable exception of former BoE Deputy Governor
Rupert Pennant-Rea writing for the Financial Times, have paid scant attention to the less savoury fact that
sterling’s collapse has also depressed the value, when expressed in US dollars for example, of the UK’s:
 Nominal GDP, a flow which effectively measures the size of the UK economy. According to some
estimates, the UK’s nominal GDP expressed in dollars may now be slightly below that of France’s; and
 Total net wealth (a stock) which was valued at £8.8trn at end-2015. This includes domestic savings,
financial stocks, machinery & equipment, corporate buildings and structures and household
dwellings (i.e. the housing). Assuming that about 90% of these assets were (and still are) sterling-
denominated, I estimate that the fall in GBP/USD from 1.48 at end-2015 to the current exchange
rate of 1.32 has cut the $-value of the UK’s net assets by about $1.3trn.
Figure 19: Sterling collapse will have dented UK’s
net worth in foreign currency-terms
Figure 20: Key data calendar
Source: Office for National Statistics
Note: Negative number implies net liabilities, positive
number net assets
Source: investing.com, ONS, BoE
Note: Bold indicates official data releases
UK total net worth, end-2015, £ trillions
Non-financial corporations -0.93
Financial corporations -0.05
General government, of which: -0.40
Debt securities -1.77
Households & NPISH, of which: 10.20
Dwellings & other buildings 5.31
Currency & deposits 1.47
Total economy 8.82
30-Aug BoE Consumer Credit (July)
30-Aug BoE mortgage approvals (July)
31-Aug GfK consumer confidence (August)
01-Sep Manufacturing PMI (August)
02-Sep Construction PMI (August)
05-Sep Services PMI (August
06-Sep BRC retail sales monitor (August)
07-Sep Halifax house price index (August)
07-Sep Industrial production (July)
08-Sep RICS house price balance (August)
09-Sep Trade balance (July)
13-Sep PPI-inflation August (July)
14-Sep Earnings and unemployment (July)
14-Sep Claimant count (August)
15-Sep Retail sales (August)
15-Sep MPC meeting

14. Households are the biggest losers from this currency effect. They had an estimated net worth of £10.2trn –
the only institutional sector with net assets according to the ONS – comprised largely of sterling-
denominated assets, including housing ( £5.3trn) and currency and deposits (£1.5trn). Sterling’s
depreciation will have cut these assets’ purchasing power in $-terms. Put differently, the price in sterling-
terms of a US holiday or property will have increased, all other things being equal, by about 11% (the
change in the GBP/USD exchange rate) since the EU referendum.