UK consumer spending could soon dip sharply, economists warn
UK consumer confidence dipped again in November and economists warned this could soon seen consumers tightening their belts and removing a key driver of the economy.
A European Commission report on Tuesday showed consumer confidence decelerated this month, contrary to a modest rise shown in a rival report by YouGov/Centre for Economic and Business Research (CEBR).
The Commission’s index of consumer confidence dipped to a three-month low of -6.9 in November from -3.3 in October and -1.7 in September, having rebounded from lows of -7.5 in August and -9.2 in July after the Brexit vote.
EC data also showed UK inflation expectations surged in November, with the balance of respondents expecting prices to rise over next 12 months spiking to +38.7 in November from +18.1 in October.
The EC’s economic sentiment index (ESI) for the UK rose to 107.3 in November from 105.8 in October.
Meanwhile, the YouGov/CEBR consumer confidence index showed a rise to 109.4 in November from 109.1 in October.
November’s second successive dip in the EC consumer confidence measure stoked suspicion "that the economy will be hampered by markedly softer consumer spending during 2017 as the fundamentals for consumers deteriorate", said economist Howard Archer at IHS Markit, which was particularly significant as consumer spending has been a key growth driver for the UK economy in the third quarter.
Although employment and purchasing power conditions are currently still decent for UK consumers, Archer said their confidence was "undoubtedly adversely affected in November by sterling’s weakness stoking concerns about rising inflation, the economy and personal finances".
"Worryingly, the fundamentals for consumers seems certain to progressively weaken over the coming months, which will highly take a significant toll on confidence as well as ability to spend. Indeed, it looks probable that inflation will move above earnings growth during 2017. Additionally, we suspect that unemployment will rise over the coming months as economic activity weakens appreciably and business uncertainties are stoked by the government triggering Article 50 (the government is still aiming for end-March), thereby bringing likely difficult negotiations with the EU to the forefront."
Sam Tombs at Pantheon Macroeconomics also said he continued to expect consumer sentiment to deteriorate further next year as inflation rises and as government policy measures dampen income growth.
On the ESI rise, Tombs said this was its highest level since December 2015 and was driven primarily by an improvement in confidence in the industrial sector, probably spurred by sterling’s depreciation, with the industrial confidence indicator having a 40% weight in the ESI even though the sector accounts for just 15% of UK GDP.
"So the ESI overstates the true economy-wide level of confidence. Sentiment among retailers also improved significantly in November, but the survey was conducted before the crucial Black Friday sales period, suggesting the reading should be treated cautiously."