UK consumers gloomy about 2017’s looming inflation and Brexit talks

Shoppers are reflected in a window as they carry bags along Oxford street during the final weekend of shopping before Christmas in London December 20, 2014.  REUTERS/Luke MacGregor

British consumers are downbeat about the economy’s prospects next year, when higher inflation is likely to erode their spending power, a major survey showed on Thursday, despite signs that growth has remained robust since June’s Brexit vote.

A big jump in households’ appetite to make major purchases helped market research company GfK’s monthly consumer sentiment index inch up to -7 in December from -8 in November, but this concealed a deterioration in consumers’ outlook for 2017.

Expectations for the year to come are now the weakest since just after June’s vote to leave the European Union, and before that they were last lower in April 2013, when the economy had suffered a period of sluggish growth.

“Confidence in the general economic situation for the UK has collapsed in the face of uncertainty about the future both at home and abroad,” GfK analyst Joe Staton said.

GfK did not give a reason for the big jump in households’ willingness to make major purchases, although on Wednesday the Bank of England said it had heard anecdotal evidence that consumers were bringing forward big purchases in anticipation of price rises in 2017.

Consumer spending has been robust this year, and earlier this week the Confederation of British Industry said its members reported the fastest retail sales growth in over a year in recent weeks.

Sterling has fallen more than 10 percent against the dollar since June’s vote, and while some retailers have raised prices already, others are expected to wait until after the highly competitive holiday season.

Meanwhile wages look unlikely to keep pace with inflation, which the BoE forecasts will rise to 2.7 percent within a year from 1.2 percent now, according to pay data company XpertHR.

Average pay rises at large companies in the three months to November stood at 1.6 percent compared with 1.5 percent in the three months to October.

“Employers have acted with caution over the past year when it comes to rewarding employees, and we expect this to continue when pay bargaining gets into full swing again in the New Year,” XpertHR said.

Prime Minister Theresa May also plans to start two years of formal talks to leave the EU early next year, which GfK said was likely to weigh further consumer sentiment.

“Against a backdrop of Brexit negotiations … and the prospect of higher inflation impacting purchasing power, we forecast that confidence will be tested,” said GfK’S Staton.

Households’ downbeat outlook contrasts with a more buoyant mood among British business.

The largest proportion of firms in a year reported higher output in the three months to December, and businesses see a broadly similar outlook for the next three months, the CBI said.

Separate figures from Britain’s automotive industry showed car production heading for its best year since 1999.

Firms selling direct to British households were an exception to the upbeat mood, however, and the CBI predicts overall growth will slow to 1.3 percent next year from about 2 percent in 2016.

[Source:- Reuters]