UK economy: information for debate on 29 June 2016

Key economic indicators – based on data from before the EU referendum vote – suggest that the UK economy was broadly healthy:

• GDP increased by 0.4% between Q4 2015 and Q1 2016. It increased by 2.3% between 2014 and 2015.
• Inflation was 0.3% in May 2016.
• The unemployment rate was 5.0% and the employment rate was 74.2% in February to April 2016.

The Library's briefing papers on the economy give more detail.

After the results of the referendum were announced, the pound fell against the dollar and the euro. The pound was worth $1.33 at close on Tuesday 28 June, down from $1.48 closing price on Thursday 23 June. At its lowest it was $1.31 (on Monday) – a 31 year low against the dollar.

The FTSE 100 also fell after the referendum result was announced but has since recovered much of its value. The FTSE 250 had not recovered to the same extent.

The Library page of financial indicators has more information on the FTSE 100 and gold prices.

Most forecasters suggest that Brexit will have a negative effect on the UK economy

Various studies have attempted to quantify the economic benefit or cost to the UK of its membership of the EU. This is a very difficult exercise and depends on a wide range of assumptions. Estimates vary significantly.

According to the Institute for Fiscal Studies (IFS), “there is an overwhelming consensus among those who have made estimates of the consequences of Brexit … that it would reduce national income in both the short and long runs.” Supporters of Brexit have argued that the economic consensus has often been wrong in the past.

The Library note In brief: UK-EU economic relations has more information about forecasts of the effects of Brexit, as well as trade, jobs associated with trade, investment, UK contributions to the EU budget and the cost of EU regulation to the UK economy.

Credit ratings changed

Following the announcement of the result of the referendum, the credit ratings agencies made changes to the UK sovereign credit ratings. Standard and Poor’s lowered its unsolicited long-term foreign and local currency ratings to 'AA' from 'AAA' (with a negative outlook), saying that, in its view, the EU referendum outcome was a seminal event that “will lead to a less predictable, stable, and effective policy framework in the U.K.”

Moody's changed the outlook on the UK's long term sovereign issuer and debt ratings to negative from stable (while affirming both ratings at Aa1). One of the key drives for its decision was the “prolonged period of uncertainty for the UK, with negative implications for the country's medium-term growth outlook.”

Fitch downgraded the United Kingdom's long-term foreign and local currency issuer default ratings to 'AA' from 'AA+' (with negative outlooks).

The Library briefing Financial services after the referendum has immediate reactions to the referendum result from City groups, official bodies and academic commentators.

Further information

Further information on the UK referendum can be found on the Library EU referendum hub.