PARIS — So far, so good. The collapse of the British economy predicted by the former Chancellor of the Exchequer George Osborne, in a case of a Brexit victory, has not materialized. The services sector, which represents 80% of the UK's GDP even rebounded unexpectedly in August, and business activity recovered its level of March, at 53.2 points.

The car market followed in a similar direction. After almost stagnating in July (+0.1%), the number of new automobiles registered rose 3.3% in August, compared to the previous year. "The initial shock (provoked by the June 23 referendum) has started to clear up," says Chris Williamson, chief economist at Markit. "An imminent recession has been avoided."

Brexit supporters see these positive indicators as confirmation of their optimistic forecasts for the future, especially given that these statistics come on top of more reassuring data.

Last week, manufacturing showed a rebound after falling in July, with a PMI index reaching its highest since October 2015.

Meanwhile, the tourism sector witnessed a bonafide boom this summer. American and European tourists took advantage of a weaker pound to visit the UK. According to Tourism Alliance, the number of visitors nationwide grew 18% in July compared to last year. All sectors have benefited from this windfall: luxury hotels, Airbnb, historical sites, amusement parks.

"As if nothing happened"

The pound's fall also encouraged more British people to spend their holidays in the UK rather than in the U.S. or in the eurozone. Between June 23 and the end of August, the pound sterling dropped 10% against the euro, and also dove against the dollar. On Aug. 15, it reached $1.287, a 30-year low. But by this past Monday, figures from the services sector pushed the pound back up against both the euro and the dollar.

London's Millennium Bridge and Saint Paul's cathedral — Photo: Photasia

"For the time being, consumers continue to lead their lives as if nothing had happened," says Robert Wood, chief economist at Merrill Lynch in London.

Still, the fact of the matter is that all the reassuring numbers cannot hide the emergence of worrying signals from the UK's commercial partners. At the recently concluded G20 summit, Japanese Prime Minister Shinzo Abe asked his UK counterpart Theresa May for more clarity from London about the implications of Brexit for Japanese companies. As for Barack Obama, he clearly told May that a separate trade deal with the UK was not among Washington's priorities. These two strategic partners let it be understood that their investors could decide to stay away from the UK if London should fail to negotiate a "soft" Brexit deal.

And beyond such threats is the very fact that not all indicators are positive. "The pound's fall has absorbed part of the shock that the Brexit victory provoked," says Wood. "But the reality is that the UK has gotten poorer, that the housing market isn't doing well and that growth will take a hit."

Of course, exports have benefited from the pound's fall. Foreign sales of UK-made products are at a two-year high. But the currency's devaluation has affected the prices of everyday products, even though the average rise in July was just 0.6%. More importantly, the costs of production materials have increased significantly. "Industry and the construction sector in particular have seen an important rise in material costs," says Markit's Chris Williamson.

More worrying still, some investors have announced that they are freezing certain development projects because of the uncertainty of the coming few months. Lloyds Bank said in late July it would cut 3,000 jobs, while cosmetics manufacturer Lush plans to move part of its production to Germany.

Economists agree that prices will continue to rise and that, more importantly, it's too soon to assess the impact of the referendum's result. "We'll only start having a clearer idea from October onward," says Iain Begg, professor of economics at the London School of Economics. "It will probably take at least a year to measure the referendum's impact on the UK's competitiveness."


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