The principal political event of the quarter has been the decision of the UK electorate in favour of ‘Brexit’ from the European Union in a referendum held on 23 June. The outcome was a surprise and went against the counsel of most economists, policymakers and international organisations as well as the majority of elected UK politicians.

In the last quarter of 2015, better economic data in the EU was overshadowed by increasing anxiety about the potential impact of declining growth and rising instability in developing economies. Aggregate unemployment rates in the Union are in their first sustained downward path since the global financial crisis began: in the EU28, unemployment stands at 9.2%; in the euro zone, at 10.5%.

In a context of globally slow growth since the financial crisis, the EU and in particular the euro zone economies have underperformed relative to other major developed-world economies. Output in the euro zone remained lower in the first quarter of 2015 than seven years earlier, and three million fewer people are working in the EU. The post-crisis output gap between the EU and the US now amounts to around eight percentage points.

Dramatic recent oil price declines have seen deflation take hold in the EU. General price levels in December 2014 were 0.2% lower than a year earlier. This is further evidence of a tentative European economic recovery that appears to be running out of steam. Growth forecasts for the EU have been trimmed to 1.1% in 2015 after growth failed to reach even 1% in 2014.