Phillip Hammond, the chancellor of the exchequer, has suggested that over time Britain’s economy will adjust to the new reality in regards to the value of sterling.
The statement came on Tuesday (18/07), when the minister was asked by a lawmaker about the impact that the still-depressed value of sterling would have. "The short run effect of a depreciation of sterling would be expected to be a decline in our trade balance performance as we suck in more expensive, in sterling terms, imports," Hammond said.
"But over time, and there's signs the economy is doing this now, the economy will adjust, with exporters increasing their output to take advantage of weaker sterling and their greater competitiveness in international markets."
The value of the pound has fallen significantly since Britain voted to leave the European Union, which has had a number of interesting effects, particularly on the UK’s manufacturing industry.
Specifically, the fall in the pound has meant a short-term boost in sales and manufacturing output for UK companies, increasing confidence in the sector. However, new research has found that the UK economy is on course for a deeper slowdown than expected, as consumer spending and business investment take a hit from Brexit uncertainty.
According to PwC’s UK Economic Outlook report, Britain’s GDP is expected to drop from 1.8% last year to 1.5% in 2017 and 1.4% in 2018. The firm have downgraded the prediction from their previous estimate, which had the 2017 GDP at 1.6%. That might sound like a small drop, but given the sums involved, it’s a significant amount of money, and a key indicator for potential investment firms planning on involving themselves in the UK.
Consumer spending has been a key driver for the UK’s economy, but household spending power is also under threat from a combination of higher inflation and lagging wage growth. John Hawksworth, PwC’s chief economist, said that Brexit uncertainty would also put the brakes on business investment as firms waited to see the fallout from the Brexit situation.
He said: “Brexit-related uncertainty may hold back business investment, but this should be partly offset by planned rises in public investment.
“Fiscal policy could also be further relaxed in the 2017 Autumn Budget to offset the ongoing real squeeze on household spending power.”
Nevertheless, the UK is only predicted to suffer a mild economic slowdown, rather than a full recession, which some had feared. It’s mixed news for the manufacturing industry, which suffers a knock-on effect from other industries, thanks to the manufacturing chain. For UK manufactures like us who produce stainless steel hose fittings, that’s not great news.
The report indicated that growth in house prices is set to stall too, hitting 3.7% this year from the 7% seen in 2016. Richard Snook, senior economist at PwC, said: “There is a huge disparity in how sub-regional housing markets have performed since the recession.
“The local authorities that have experienced the greatest falls in house prices since 2007 are all based in Northern Ireland, while London dominates biggest risers with all boroughs experiencing price growth of over 50 per cent.”