LONDON — Friday’s shock election result, in which Theresa May’s Conservative Party failed to gain a majority, is set to be bad news for the finances of average Brits, if early indicators from the markets are to be believed, according to analysis from investment firm Hargreaves Lansdown.
“Following the UK election, sterling is coming under pressure, with a weak pound once more helping the FTSE 100. However, underlying that market strength, investors are betting that the average Brit will be poorer following this morning’s election result,” Hargreaves Lansdown equity analyst Nicholas Hyett wrote in an emailed note late on Friday morning.
Since the Brexit vote 11 months ago, the pound has dropped from close to $US1.50 to around $US1.28,making it more expensive to import goods into the UK. That, in turn, has created inflation, pushing up the cost of the average shopping basket and squeezing the pockets of regular Brits.
Consequently, the consumer boom — which as Deutsche Bank noted earlier this week has been “the main reason for the UK’s robust growth performance” since the referendum — is slowing down and dragging overall growth with it.
With inflation set to rise further over the course of 2017, hitting more than 3% in some forecasts, that consumer slowdown could intensify, especially with further weakness in the pound expected following the election.
In the equity markets, Hyett writes, “the fallers are notable.” Here he is once more (emphasis ours):
“Housebuilders are down across the board, but they’re joined by restaurants, high street banks, fashion retailers and media outlets. The implication is clear, consumer’s disposable incomes are expected to be stretched, and big ticket items, like property upgrades, as well as little luxuries, like regular meals out, are expected to be among the first to go.
“Sinking share prices at the likes of Next, Restaurant Group, easyJet and Dixons Carphone are all a reflection of the fact that lower sterling and political uncertainty mean the pounds in Britons’ pockets seem set to be lighter going forwards. The worries about the housing market have also spread beyond the housebuilders, with building materials suppliers such as Howdens and Travis Perkins joining the tumble.
Not only is an accelerating consumer slowdown bad for the average Brit, but it also bodes badly for the macro economy. Given that consumers have been the key drivers of the UK’s economic strength in recent years, any consumer slowdown is a troubling prospect.