Income and wellbeing up, but consumers fear for the economy

13th August 2019.

Despite household income rising and scores for wellbeing increasing, British consumers fear for the economy in general, with worries over rising unemployment at a six-year high and expectations of the economy’s performance over the next year their most gloomy since 2011.

The Office for National Statistics said that “all main measures of economic wellbeing increased” in the first three months of 2019, with household income up by 1.8% while spending per head rose by 1.2%, compared to the same period last year – an all-time high.

Per-capita net wealth rose by 3%, driven by an increase in the value of equity and investment fund shares and pension schemes.

Howard Archer, chief economic adviser at EY Item Club, points out that consumer confidence has played an important role in countering falling investment over the year so far.

Martin Beck at Oxford Economics notes: “Intuitively, personal circumstances are likely to be a more important driver of households’ willingness to spend than the rather nebulous concept of the ‘economy’.”

Economy shrinks 0.2%

Data from the Office for National Statistics shows that the economy shrank by 0.2% between April and June, marking the first contraction since 2012.

Consensus among analysts had seen a forecast of 0% growth in Q2. The 0.2% dip in GDP follows growth of 0.5% in the first three months of the year, with Q1 boosted by stockpiling ahead of the original Brexit deadline of March 29. This contributed to Q2’s fall, with buying reduced as companies utilised the stockpiled goods and materials.

Analysis of Q2 performance shows that import levels were down 13% quarter-on-quarter, exports fell 1.5%, manufacturing output was down 2.3% and business investment was 0.5% lower. PwC economist Mike Jakeman warned that the possibility of a recession – defined as two consecutive quarters where the economy shrinks – “is now very real”.

He commented: “Monthly data for June showed no growth at all, which suggests that the economy is entering the third quarter with no momentum.”

Tej Parikh, chief economist at the Institute of Directors, said the economy is “facing a bumpy ride going into the third quarter”.

Chancellor Sajid Javid offered that while we are in a “challenging period across the global economy … the fundamentals of the British economy are strong”.

UK faces long-term risks on all fronts

Kallum Pickering, the senior economist at Berenberg, examines in today’s daily telegraph the economic risks facing the UK as it leaves the EU, suggesting Boris Johnson’s spending plans could backfire.

But a snap election resulting in a Corbyn-led Labour government would bring higher risks, says Pickering, pointing out that an “economy facing excessive regulation and poor fiscal discipline could not prosper even within the most frictionless trading regime.”

With the risks of a no-deal Brexit and a far-Left government, it is no wonder investors are spooked; but for the UK to be taken seriously outside the EU “it has to pursue policies that adhere to sound economic principles,” Pickering concludes.

Job vacancies fall by 4%

The uncertainty is hitting the jobs market.

The number of job vacancies has fallen by 4% since the start of the year as firms contend with rising wages and a sluggish economy, according to BDO.

The firm’s Peter Hemington said: “This could be the beginning of the end of the strong employment market in the UK. Businesses are facing upwards pressure on wages even while the economy lags, so hiring plans are taking a hit.”

German financial sector wants EU to take hardline with UK

Findings released on Monday by Frankfurt University’s Centre for Financial Studies indicate a hardening of sentiment among German bankers and financial service providers, who now expect a no-deal Brexit is unavoidable, with 70% saying the EU should not offer the UK any more concessions to avoid no-deal.

Some 61% of those surveyed believe the financial markets have not yet effectively factored in the risk of no-deal, however, almost two-thirds said they believed the German financial sector was sufficiently prepared to cope with no-deal.

Hubertus Väth, managing director of Frankfurt Main Finance, which funded the study, said it would be important for financial centres in continental Europe “to demonstrate their efficiency” and successful cooperation could see Europe “emerge from the crisis even stronger.”

BoE told to cut rates ahead of Brexit

Following ONS data showing a 0.2% fall in GDP in the second quarter, the Bank of England has come under pressure to cut interest rates before Britain’s departure from the EU.

Geoffrey Yu of UBS Wealth Management said: “As uncertainty continues to loom over the UK economy, the difficult run of data is expected to continue and the Bank will need to consider its next step carefully as its global peers embark on further rate cuts.”

Elsewhere, Yael Selfin, chief economist at KPMG, commented: “It is clear that the uncertainty and prospects of Brexit are causing havoc on the UK business environment, with business investment contracting once again and significantly hurting the future prospects of the UK economy.”

SME bosses risk health by shunning holidays

However not everyones wellbeing is ok.

Small business owners are being urged to take a break after a survey by Simply Business found bosses are going without a holiday for several years.

Time pressures and money concerns mean that 9% of SME owners – equivalent to more than half a million – haven’t had a holiday in as long as five years.

The business insurance firm said the trend of UK business owners struggling to switch off could lead to mental and physical health issues and dent productivity.