U.K. consumer confidence weakened this month as the pound’s slide, rising prices and weak pay growth began to weigh on the powerhouse of Britain’s economy.
GfK’s household-sentiment index fell in February, remaining below zero for a 10th month, and the appetite for making major purchases decreased, indicating that Britons may be starting to rein in spending. A separate gauge by YouGov and the Centre for Economics and Business Research also declined, with an index of job security slumping to the lowest since 2014.
Consumer spending and the dominant services industry have driven economic growth since Britain’s vote to leave the European Union in June, but that’s showing signs of strain. Inflation is accelerating due to rising energy prices and the pound’s 16 percent drop since the referendum. Credit growth slowed sharply in December and retail sales grew at their slowest annual pace in more than three years in January.
“Any momentum behind the post-Brexit, debt-fueled, consumer-spending boom now appears to be softening,” said Joe Staton, head of market dynamics at GfK. “Any further fall in confidence could support forecasts for a slowdown of the overall economy this year.”
Chancellor of the Exchequer Philip Hammond should prioritize weaning the U.K. economy off its reliance on consumption in his March 6 budget, according to the Resolution Foundation, which ranks it alongside a shrinking tax base and inequality as one of Britain’s biggest structural problems.
“With last year’s growth driven entirely by consumption, the prospect of a significant slowdown in household income growth in the coming years raises serious questions over sustainability,” said Matt Whittaker, chief economist at Resolution. “For households across Britain, the living standards story of this parliament risks being one of anemic growth and rising inequality.”
That concern looks set to be compounded as wages fail to keep pace with price growth. In a report Tuesday, Job-search engine Adzuna said advertised salaries are 0.8 percent lower than a year earlier, even as employment has climbed to a record.
A separate business confidence index from Lloyds Bank increased to the highest level since March 2016. Sentiment gained “significantly” from a month earlier in both consumer and business services, it said.
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