The British economy is putting in a resilient performance, led by strong consumer and business activity, despite a month of political upheaval that pushed the UK closer to a no-deal Brexit, according to a Guardian analysis.

The latest snapshot suggests a disconnect between the economy and the political process, as Theresa May dealt with cabinet resignations over her Chequers plan. Senior economists are, however, warning there is a “lull before the storm” with little more than six months until the UK formally leaves the EU.

Writing in the Guardian, Andrew Sentance, a former member of the Bank of England’s interest rate-setting monetary policy committee, said: “If Brexit negotiations do go badly, there could be a sharp downward correction in the UK economy in the first half of next year.

“Things don’t look too bad now, but hold onto your hats as we move from autumn into winter. It could get choppy in the next few months.”

Sign up to the daily Business Today email or follow Guardian Business on Twitter at @BusinessDesk

Threadneedle Street has begun to identify shifting patterns of behaviour in the UK economy as businesses put investment on hold and reallocate spending to the continent rather than Britain. Some companies have also made plans to stockpile goods amid concerns over border delays.

Delays of only half an hour at UK ports and the Irish border would risk one in 10 British firms going bankrupt, according to a survey from the Chartered Institute of Procurement and Supply.

To gauge the impact of the referendum outcome on a monthly basis, the Guardian has chosen eight economic indicators, along with the value of the pound and the performance of the FTSE 100. Economists made forecasts for seven of those barometers before their release, and in four cases the outcome was better than expected.

In the latest figures, consumers shrugged off the impact of higher inflation and prolonged their summer spending spree, while there was also an upswing for growth in the dominant services sector. The pound has gradually recovered strength and the UK’s trade deficit – measuring the difference between imports and exports – narrowed slightly in July to one of the best monthly readings in 20 years.

Although there was a slowdown in manufacturing and construction output, the IHS Markit/CIPS purchasing managers’ index for the services sector – which accounts for 80% of economic activity in the UK – jumped from 53.5 to 54.3 on a scale where anything above 50 indicates expansion versus contraction. However, there are fears of labour shortages from a slowdown in the numbers of EU workers coming to Britain in the two years since the Brexit vote.

Pay growth for British workers showed signs of strengthening amid the lowest levels of unemployment since the winter of 1974-75, helping to alleviate pressure on household finances.

However, the latest economic figures do paint a picture of Britain just before the worst of the recent political turmoil. Much of the data on the dashboard covers the summer months of July and August.

There was some negative news from the latest dashboard. Inflation unexpectedly increased, while global oil prices have risen, which could add further pressure on households in the near future. The government finances also recorded the worst August deficit in three years, ahead of next month’s budget on 29 October.

With little clarity on the future relationship between the UK and the EU yet to emerge, the International Monetary Fund has warned that any failure to secure a deal would have “dire consequences” for the economy.

There are also concerns about Donald Trump’s pursuit of a more protectionist trade policy which could damage the global economy, with potentially negative effects for the UK as it tries to strike new trade agreements elsewhere around the world after Brexit.

Writing in the Guardian, David Blanchflower, another former member of the Bank’s MPC, warned of the risks to US trade while warning that Brexit represented the “biggest downside risk to UK growth” on the horizon.

“Six months to go and counting and still the government has no credible Brexit plan. Sanity needs to prevail and soon. A no-deal Brexit would be a job and economic output killer,” he warned.

Contributor

Richard Partington Economics correspondent

The GuardianTramp

Related Content

Article image
The Brexit economy: light at the end of the tunnel?
With progress in talks with Brussels sterling has now strengthened, inflation is falling and pay is rising

Richard Partington

27, Mar, 2018 @1:03 PM

Article image
How has the Brexit vote affected the economy? March verdict
Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade in the UK

Richard Partington

27, Mar, 2018 @12:27 PM

Article image
The Brexit economy: the storm clouds are gathering
Guardian analysis of key economic figures paints a picture of deepening gloom, with rising inflation denting consumer spending and investment

Richard Partington

24, Oct, 2017 @11:13 AM

Article image
The Brexit economy: looming rate rise clouds outlook as inflation dips
‘The beast from the east’ blew the UK economy off course, further complicating an already complex picture

Richard Partington

26, Apr, 2018 @12:21 PM

Article image
How has Brexit vote affected the UK economy? July verdict
Each month we look at key indicators to see what effect the Brexit process has had on growth, prosperity and trade

Richard Partington

31, Jul, 2019 @5:00 AM

Article image
How has Brexit vote affected UK economy? October verdict
How has the economy reacted to the vote to leave the EU? Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade in the UK

Richard Partington

24, Oct, 2017 @11:13 AM

Article image
How has Brexit vote affected the UK economy? January verdict
Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade

Richard Partington

25, Jan, 2019 @7:00 AM

Article image
How has the Brexit vote affected the economy? April verdict
Each month we look at key indicators to see what effect the Brexit process has on growth, prosperity and trade in the UK

Richard Partington

26, Apr, 2018 @12:21 PM

Article image
British consumer keeps UK plc afloat as key sectors start to sink
As a no-deal Brexit looks increasingly likely sterling is starting a steep slide and growth is stalling

Richard Partington

31, Jul, 2019 @5:00 AM

Article image
How has Brexit vote affected UK economy? December verdict
Each month we look at key indicators to see what effect the Brexit process has had on growth, prosperity and trade

Richard Partington Economics correspondent

27, Dec, 2019 @7:00 AM