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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Consumers feel squeeze as confidence continues to fall

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Andy jalil -


andyjalil@aol.com -


UK consumer confidence has dropped to its lowest level since the aftermath of the Brexit vote as households and businesses feel the inflation squeeze. A long-running barometer of consumer sentiment fell to a negative reading of 10 in June, a sharp decrease from minus five in May, according to data published this month. That leaves the closely followed measure only two points above its post-EU referendum low.


GfK’s (which is a consumer research organisation) measure of major purchase intentions, which forms part of the index, plummeted eight points. Separate figures, published by Asda, show Britons’ disposable incomes becoming eroded. UK families had £194 of discretionary spending last month, £4 less than the same month a year before. People on the lowest incomes were hit with the biggest fall in disposable income, with their weekly incomes falling by 28pc year-on-year.


Ruth Gregory from Capital Economics said: “The consumer is likely to have a tough year ahead with the squeeze on pay growth intensifying.” City economists are wary of waning consumption dragging on growth, which has so far proven resilient. Gregory said spending will slow this year after being one of the main drivers of growth last year.


Optimism surrounding the economy has been hit by sharp increases in consumer prices over the past year. Sterling remains around 13 per cent less valuable against the euro than immediately before the referendum. The consequent higher price of imports caused the consumer price index to expand at an annual rate of 2.9pc last month, according to the Office for National Statistics.


Meanwhile the weak government (following the snap election result) has added to uncertainty for businesses — although now the government’s tone is changing more in favour of businesses — as they approach a possible turning point in the economy. Business confidence had fallen after the General Election, according to a survey by Lloyds Bank of firms across Britain. The balance of companies reporting they were confident in their prospects surveyed after the election result was only 21 per cent, down from 40 per cent before Prime Minister Theresa May lost her majority.


That drove optimism for the whole of the economy to its lowest level in five years, Lloyds reported. However, business optimism remains well above post-referendum lows, with exporters in particular reporting healthy order books.


Senior economic adviser at PwC, Andrew Sentence said: “Consumer spending has stalled, after a period of strong growth — with retail sales volumes increasing by 4.4pc a year in the three years 2014-16. He added: “We should expect this subdued pattern of retail sales and consumer growth to continue in the second half of this year and into early 2018.”


The amount of credit offered to British consumers grew by the most in six months, continuing the trend of a big expansion in lending to households which has caught the eye of regulators. Total consumer loans outstanding now add up to just short of £200bn, with another £1.7bn added to the debt pile in May (June figures are yet to be out) alone, according to the Bank of England (BoE). That represented 10.3 per cent annual growth, far above the expansion in incomes.


Meanwhile, mortgage approvals during the month surprised economists slightly to the upside, with 65,202 approvals for purchase, up from 65,051 in the previous month. However, the rate of house purchases was below the six-month average. The figures came in the week the BoE’s financial stability chiefs, the financial policy committee (FPC), warned consumer lending was one of multiple “pockets of risk” in an otherwise stable UK financial system.


The BoE’s economists are concerned British consumers are borrowing unsustainable amounts in an effort to sustain their standards of living as inflation rises. Separate figures published by Scottish Friendly and the Social Market Foundation appear to back this up, with 85 per cent of households in London saying they use credit to make ends meet.


The growth in credit card debt, which reached £68.2bn, has attracted the scrutiny of the FPC, with BoE deputy governor for financial stability Jon Cunliffe warning competition in the sector may be too intense. Some firms offer interest-free teaser periods of up to four years in a bid to attract customers. The BoE is also concerned about other aspects of consumer lending, with risky car finance deals attracting particular scrutiny.


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