UK shoppers regain confidence after Brexit vote as saving levels decline

Encouraged by low interest rates, consumers are put off saving and are spending instead, according to GfK’s consumer confidence index.

The index increased by five points in August to -7, after falling by 11 points in July, the biggest monthly decline in over two decades, after the UK voted to leave the European Union.

"We're reporting some recovery in the index this month as consumers settle into the new wait-and-see reality of a post-Brexit, pre-exit UK,” Joe Staton, head of market dynamics at GfK said.

“The uptick in confidence is driven by good news from hard data, the combination of historic low interest rates matched with falling prices and high levels of employment.”

The personal finances index increased by one point in August to zero, which is three points lower than August last year. GfK forecasts this will increase by five points in the next 12 months to +4, which is three points lower than this time in 2015.

The savings index fell 16 points in August to -15, which is 17 points lower than the same month last year. In early August the Bank of England (BoE) lowered interest rates to 0.25% from 0.5% in a bid to stimulate the economy and discouraged people to save.

Staton added: “We Brits are clearly determined to carry on shopping for today rather than saving for tomorrow."

GfK measure for the UK’s general economic situation in the past 12 months increased by two points to -23, 26 points lower than in August 2015. This increased expectations for the next 12 months by 11 points to -22.

The major purchase index also increased by nine points to +7, which is 10 points lower than in August last year.

Laith Khalaf, senior analyst at Hargreaves Lansdown, said: “The GfK survey shows us that immediate loss of confidence following the Brexit vote is moderating, as consumers face up to the reality that economic circumstances have not radically transformed overnight. Ultimately time will tell if the decision to leave the EU damages the UK economy, and if so to what extent, but so far the signs are relatively encouraging.”

However Khalaf said it was still too early to judge the economic impact of the Brexit vote and if more robust data comes out the BoE may be “wondering whether such an early interest rate cut was entirely necessary”.

He added: “While the BoE wants consumers to go out and spend their pennies, because that props up the aggregate economy, it doesn’t bode so well for their individual saving and retirement plans.”

Economist Sam Tombs at Pantheon Macroeconomics argued that consumer sentiment has been dealt a lasting blow by the EU referendum.

"The composite index remains much lower than its average of zero in the first six months of 2016. The increase in the index also appears to partly reflect seasonal factors," he said, noting that GfK’s measure is not seasonally adjusted.

Tombs pointed out that the EC’s UK Economic Sentiment Index for consumers, which uses the same data but is seasonally-adjusted, rose only to -8 in August from -9 in July.

"The looming real income squeeze, however, as inflation picks up and job growth moderates, likely will weigh on consumer sentiment over the next six months and lead to a sharp slowdown in household spending growth," he added.