UK consumer spending now under pressure

Published 19 April 17

Theresa May has just announced a snap election for 8 June; in part this must be due to the strong performance of the UK economy as predictions of a post-referendum slowdown have not materialised.

The GDP growth estimate for 2016 gives an annual growth rate of 1.8%, only fractionally lower than 2015, with consumer spending the main driver of this. Consumer confidence has even bounced back since the referendum. However, the economy is susceptible to any changes in consumer confidence. There are now tentative signs that consumer confidence may be easing back as inflation is picking up again, matching earnings growth.

This will impact on households’ spending power, making the forecast for UK economic growth more dependent on other sectors to fill the gap. For example, can UK exports, helped by the fall in sterling, contribute to economic growth? With government spending cuts and Brexit uncertainties reducing the level of investment, growth may be slower than might be hoped for.