LONDON — Britain’s economy is in for a rough ride over the course of 2017, as the consumer spending that has driven the country’s growth for year dries up.
Consumer spending is beginning to slow and ratings agency S&P Global has produced a diagram showing how big an issue this could be for the economy in its latest European Economic Snapshots note.
The chart, which shows the composition of economic growth in the UK over the last six years, illustrates just how reliant the economy has been on domestic consumption (the light blue bar):
If consumers stop spending — and signs suggest they are already starting to spend less is — economic growth will likely suffer as a result.
The S&P report notes: “We have revised our GDP growth forecast for 2017 to 1.7% from 1.4% earlier (in Q4 2016), mainly to reflect a 1% carryover from 2016.
“The Q1 2017 result of 0.3% was in line with this forecast. Although there are signs of some rebalancing of economic activity toward external trade, the UK for now remains a consumer-led economy; hence consumer spending will be a key driver of growth in 2017 and beyond, even though it will likely slow as higher inflation — expected to average 2.6% this year — squeezes household budgets.”
This is not a new or controversial point. Economists have been saying this would happen since the vote for Brexit last summer and last week Bank of England Governor Mark Carney neatly summarised the troubles facing the British consumer, saying at a press conference:
“In its February projections, the MPC expected that this tension between consumer strength and relative financial market pessimism would be reduced over the course of this year. That process has now begun. With wage growth moderating and inflation picking up, both household spending and GDP growth have slowed markedly.”