Eurozone and UK economic confidence falls slightly

Consumer and business confidence has fallen slightly in the eurozone and the UK, according to a monthly European Commission survey.

The EC’s headline economic sentiment indicator for the euro zone fell to 112.3 in June from 112.5 in May, above the consensus of 112.0. The decline was mainly due to a fall in the consumer indicator, which had already flagged in advance, while the business climate indicator declined slightly to 1.39 from 1.44, while industrial confidence remained unchanged at 6.9.

The ESI for the UK fell to 106.9 in June from 107.4 in May, well below its 12-month average of 109.2, driven by a decline in confidence among services firms to a seven-month low.

A seasonally adjusted indicator of UK consumer confidence, which comes a day ahead of GfK’s UK-specific index, also weakened to its lowest level since December.

This signals that the economy hasn’t bounced back in the second quarter as strongly as the Bank of England expected, says Pantheon Macroeconomics.

"Consumers have become more pessimistic about the outlook for the economy and, to a lesser extent, their own personal finances. Notably, the largest majority of households since July 2016 expect unemployment to rise over the next year. In addition, the proportion of households planning to save more over the next year remained well above average, indicating that growth in spending will lag behind incomes ahead."

As for the EU, while the industrial and services confidence indices were unchanged, sentiment fell in Germany, but increased in France and Italy mainly due to higher construction and consumer confidence, respectively. Headline sentiment was unchanged in Spain.

While the headline EZ sentiment index points to solid GDP growth of above 0.8% quarter-on-quarter, Pantheon's economists said that prediction "is difficult to take serious, though, given how over-optimistic it has been recently".

Over at Capital Economics, the view was that the marginal softness in the EZ index was "further evidence that the softness in activity recorded in Q1 does not mark the start of a sharp downturn"

At a regional level, the ESIs for Central and Eastern Europe were weaker in Q2 than in Q1, which Capital said supported its view that regional GDP growth peaked in Q3 2017.