Brexit is stalling Britain's consumer spending boom

LONDON — The confidence of British consumers dropped further in February, raising fears about the continued ability of household spending to sustain Britain’s economy.

Market research firm GfK’s overall consumer confidence index — which measures the degree of optimism British consumers demonstrate through their spending and saving — dropped by a point over February to -6.

The index was down one point from January and six points year-on-year.

Although the index score is still well above its long-term average — it fell below -30 in 2011 — it has been on a downward trend since October, in a sign that Brexit-induced inflation and stagnant wage growth are beginning to bite.

Domestic consumption accounts for a large chunk of the UK’s GDP, and Britain’s economy is “extremely vulnerable” to a slowdown in households’ spending, according to a note from Samuel Tombs, chief UK economist at Pantheon Macroeconomics.

Joe Staton, head of market dynamics at GfK, said: “Against a backdrop of rising food and fuel prices, sterling depreciation, nominal earnings growth and a burgeoning fear of rapid inflation, concern about our personal financial situation for 2017 has contributed to a drop in UK consumer confidence this month (to -6).”

“Any momentum behind the post-Brexit, debt-fuelled, consumer-spending boom now appears to be softening.”

Take a look at the full breakdown from the index:

The Major Purchase Index, which measures households’ plans for expensive purchases such as cars and washing machines, by five points, a sign that households are increasingly worried about long-term personal finances.

Staton said: “Mounting pressures on disposable income are starting to bite as witnessed by two months of falling retail sales (ONS) and a further drop in the Major Purchase Index. Consumer spending continues to drive economic growth in the UK so any further fall in confidence could support forecasts for a slowdown of the overall economy this year.”

 

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