Consumer confidence recovered a little in July, but rising concerns about a no deal Brexit could mean that sentiment soon returns to its recent lows.
Confidence strengthens, but unlikely to rise further over next few months
- Consumer confidence recovered a little in July, but rising concerns about a no deal Brexit could mean that sentiment soon returns to its recent lows.
- The composite GfK/NOP measure of consumer confidence rose from -13 in June to -11 in July. Admittedly, that was still below its long-run average of -9. (See Table 1.) But the details of the survey were encouraging, with the rise broad-based across the sub-balances. And the EC’s measure, which seasonally adjusts the GfK figure, suggests it would have been higher if it weren’t for seasonal factors.
- Consumers were more optimistic about their own financial situation over the next 12 months with the own finances balances rising by 5 points from +2 in June to +7, its highest in just under a year. Consumers even appeared a little less pessimistic about the economic outlook over the next 12 months.
- Yet on the face of it, the headline measure of consumer confidence is still only consistent with retail sales growth of around 3% y/y. (See Chart 1.) And households were less keen to make big ticket purchase – the major purchases balance fell 2 points from -2 in June to -4.
- And note that the survey was carried out from the 1st – 14th of July, before Boris Johnson was elected Prime Minister. As a result, confidence in the UK economy could be knocked in August’s data due to rising concerns over a no deal Brexit. After all, the economic outlook balance has tended to follow the twists and turns of the Brexit saga closely.
- Overall, while we doubt the rise in consumer confidence in July is the start of a recovery, robust wage growth and benign inflation means confidence and household spending probably won’t fall drastically either.
Chart 1: GfK Own Finances Balance & Retail Sales
Source: GfK, Refinitiv, Capital Economics
Table 1: GfK Consumer Confidence
Economic sit. over next 12m
Own finances over next 12m
Climate for major purchases
Gabriella Dickens, Assistant Economist, +44 20 3974 7421, firstname.lastname@example.org