Consumers to remain confident despite equity rout

The FTSE 100’s sharp decline last week, leaving it 10% below its peak in April, certainly won’t lift consumers’ spirits but it is unlikely to be large enough to dissuade them from continuing to spend more either.

The relationship between equity prices and consumer confidence has been very weak recently, perhaps reflecting the declining proportion of households’ financial assets accounted for by shares. Movements in real earnings and house prices have been much more important determinants of consumer confidence than changes in equity prices. And the outlook for real earnings, and to a lesser extent house prices, remains positive.