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, 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, 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 EU, 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,” said GfK analyst Joe Staton.
GfK did not give a reason for the big jump in households’ willingness to make major purchases, although earlier this week 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% against the dollar since June’s vote, and while some retailers have raised prices, others are expected to wait until after the highly competitive holiday season.
Meanwhile, wages look unlikely to keep pace with inflation, which the Bank of England forecasts will rise to 2.7% within a year from 1.2% now, according to pay data company XpertHR.
Average pay rises at large companies in the three months to November stood at 1.6% compared with 1.5% 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,” said XpertHR.
UK prime minister Theresa May plans to start two years of formal talks to leave the EU early next year, which GfK said is 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.
© Irish Examiner Ltd. All rights reserved