Business & Consumer Confidence (Aug.) - Capital Economics
UK Economics

Business & Consumer Confidence (Aug.)

UK Data Response
Written by Gabriella Dickens

August’s EC survey of UK business and consumer confidence raises concern that the consumer sector may soon succumb to the malaise that has taken hold in the manufacturing sector. But with real wage growth still solid, households still have the ability to spend and remain the strongest part of the economy. What happens with Brexit in the coming months will determine how likely households are to spend.

Sentiment amongst businesses and consumers weakens

  • August’s EC survey of UK business and consumer confidence raises concern that the consumer sector may soon succumb to the malaise that has taken hold in the manufacturing sector. But with real wage growth still solid, households still have the ability to spend and remain the strongest part of the economy. What happens with Brexit in the coming months will determine how likely households are to spend.
  • The overall UK Economic Sentiment Indicator fell from 94.3 to 92.5, its lowest level since early 2012. The fall was driven by drops in sentiment among consumers, services firms and retailers, the latter to its lowest level since 2009. Admittedly, confidence of construction and industrial firms rose in August, but that followed sharp falls in the previous two months. (See Table 1.)
  • The fall in the consumer confidence balance, which is a seasonally adjusted version of the GfK/NOP measure of confidence suggests that the GfK measure will fall from -11 in July to -14 in August when it is released tomorrow. Consumers’ view of the economy as a whole was particularly weak. The balance measuring households’ confidence in the general economic situation over the next 12 months fell from
    -27 to -36, the lowest for over seven years. That’s not too surprising given this balance tends to track the twists and turns of Brexit and could now responding to the rising chances of a no deal Brexit.
  • What’s more, consumers were less confident in their own financial situation, and this balance tends to have the best relationship with the official retail sales figures. Indeed, the fall from +7 to +1 in August points to the annual rate of retail sales growth slowing from 3.2% in July to around 2% in August. (See Chart 1.)
  • There are reasons not to be worried yet. The headline measure of consumer confidence is similar to those seen over the past ten months. And strong employment and wage growth suggest consumers have the ability to spend, although their willingness to spend may falter if the chances of a no deal Brexit rise further.
  • Overall, there are some signs that households are becoming more susceptible to the Brexit chaos which is already keeping a lid on business spending.

Chart 1 : Seasonally Adjusted Own Finances Balance & Retail Sales

Sources: European Commission, Refinitiv, Capital Economics

Table 1: UK Economic Sentiment Indicator (Seasonally Adjusted)

Aug-18

Sep

Oct

Nov

Dec

Jan-19

Feb

Mar

Apr

May

Jun

Jul

Aug

ESI, of which:

109.6

108.3

108.3

105.0

105.4

103.7

99.2

100.8

99.3

94.5

95.1

94.3

92.5

Consumer

-6

-7

-7

-8

-9

-11

-11

-12

-11

-8

-11

-7

-11

Retail Trade

15

5

10

2

-8

-2

2

1

5

3

-8

-12

-29

Services

3

5

6

-2

-8

-5

-16

-9

-7

-15

-13

-6

-15

Construction

-2

-3

1

6

0

-3

-3

-11

-13

-3

-15

-4

1

Industrial

8

5

3

4

8

2

0

0

-5

-11

-11

-17

-12

Sources: EC, Refinitiv


Gabriella Dickens, Assistant Economist, +44 20 3974 7421, gabriella.dickens@capitaleconomics.com