Bruegel

The Daily Update - Brexit and Bruegel

It is now close to ten weeks since the vote for Brexit. Interestingly, the economy is holding up better than the doomsday scenarios projected, in the short-term at least. The August manufacturing PMI showed one of the strongest monthly gains in 25 years rising 5.1 points to a reading of 53.5; this suggests UK manufacturing has benefited from the fall in sterling since the vote on June 23. The recent house price data has also proven robust so far rising 5.6% yoy in August, although we note the more bearish will point to a weakening in mortgage approvals. All this has given sterling a bit of a reprieve but it is still trading over 10% weaker against the US dollar and over 9.5% weaker against the euro. Whether this better than expected growth scenario is sustainable is still up for debate as the impact on investment is still an unknown. But with a strong legal framework and a skilled workforce investment may be more resilient than is feared, particularly as the UK Treasury seems to favour cutting taxes: Apple’s €13bn EU fine for tax avoidance suggests Europe is moving in the opposite direction.

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