Consumer spending falls for third month in a row
It’s the longest decline in consumer spending in over four years. Brexit is becoming a heavy weight around the UK’s neck.
New figures published today in Visa’s UK Consumer Spending Index, which was compiled by IHS Markit, show consumer spending fell by 0.8% in July compared to last year. It’s the third month in a row that a fall has been recorded. Visa’s UK & Ireland managing director Kevin Jenkins said it is “the first time overall spending had fallen for three consecutive months since February 2013”. Jenkins further noted the report is “further evidence that rising prices and stagnant wage growth are squeezing consumers’ pockets”.
Shortly after the referendum, the strength of consumer spending was hailed as a key factor behind the UK economy’s resilience when many economists had forecast an immediate slowdown from a vote to leave. Over a year later, consumer spending is in decline pointing to a weakening economy.
Could this just be a temporary slump? IHS Markit principal economist Annabel Fiddes doesn’t think so. Commenting on the report, Fiddes said that as well as a renewed squeeze on household budgets, Brexit uncertainty is also “weighing down consumer spending” and it seems “unlikely that consumer spending will recover in the current challenging conditions”. Fiddes also said “this adds to expectations that the Bank of England will not hike rates anytime soon”.
Brexit seems increasingly like a heavy weight around the UK’s neck. Last week, the Bank of England governor Mark Carney said “it is evident that uncertainties about the eventual relationship [with the EU] are weighing on the decisions of some business”. Indeed, in its latest inflation report, the Bank cut its growth forecast to 1.7% for 2017 and down to 1.6% for 2018. However, the longer-term outlook is more worrying as businesses delay investment plans and consider relocating activity or refocusing investment out of the UK. As the Financial Times reports, the Bank of England now expects investment to be down by 20% in 2020 compared to what it forecast before the referendum.
And the report suggested that Brexit isn’t just weighing on business investment and consumer spending, it’s also weighing down on productivity growth, wage growth and GDP growth.
Meanwhile, we still don’t seem to have a coherent or consistent message from government about their plans for Brexit. The Guardian reports the government will publish several Brexit policy papers in the next few weeks including its position on new customs arrangements as well as on the Irish border. We can only hope they finally start delivering the “clarity and certainty” the government has long promised over Brexit.