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Source: https://pixabay.com/en/roller-coaster-fair-speed-fun-1975868/
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If you picked up a paper at the start of the month you would have seen several
economic editors lead with stories regarding Britain’s robust response, with
total sales being up 6.3% on the same month last year. They suggest that these
trends are defying fears of an economic slowdown in post Brexit vote.
However, only one week later, after Bank of England governor Mark Carney
warned of a consumer spending squeeze, the tone changed dramatically. The
doomsayers are out in force to declare that this is now indeed the start of the
decline in growth that was predicted in the aftermath of the Brexit vote.
So, which is it?
As previously alluded to last month in the blog about the British fashion
industry, the answer is not so clear cut. If consumer
spending, a key driver of economic growth, increases, then the strength of the
pound and UK economy normally follows suit.
We are beginning to see different consumer spending trends emerge
throughout UK’s industries in the face of Brexit, both with positive and
negative consequences.
Retail
The retail industry has long been an excellent indicator on the level of
consumer spending and health of the UK economy. Therefore, it is encouraging to
read reports of sales being up 6.3%.
These reports were further boosted by the news from independent
companies such as Dixons Carphone, that their sales have seen a 2% revenue
increase over the last quarter. The early indications are that they expect this
growth to continue, if only slightly.
Yet, the future for the whole industry remains unclear.
When you consider that the UK spends more per household online than any
other country, the news that online
consumer spending in the UK has dipped for the first time since 2013,
is not ideal.
With an expected surge in the purchase of father’s day
gifts around the corner, following on from the recent shopping spree for Easter, this online dip could well be short be lived. Nevertheless, analysts
and consumers are concerned.
The strength of the British pound continues to flounder and analysts
worry this is going to further erode purchasing power. Imports will continue to
grow in cost, making it not only more expensive in store but also more
difficult to find competitive deals online. Similarly, the uncertainty of
article 50 negotiations could cause consumers to hold back on buying major
items, as they worry about the economy and their own jobs.
Tourism
One of those major items is a summer vacation.
The tourism industry has seen consistent and expansive growth over the
last six decades. Historically this was a day or weekend by the sea, enjoying
ice cream and amusements at one of Britain’s beautiful seaside towns.
This has since morphed into package holidays in the sun of Europe and
even in recent years, on the back of exceptional exchange rates, consumers have
undertaken long haul holidays to developing nations.
Therefore, it is only natural that the desire to undertake these trips
has fallen in line with the strength of the pound.
The uncertainty around the exchange rate is making it difficult to
decide on a trip that could end up costing significantly more by the time it
comes around. Mintel is reporting
that spiralling holiday costs are a concern for 35% of Britons wanting to
escape this summer, with 53% considering UK staycations.
While not ideal for those hoping to jet off, it does provide two obvious
upsides for the UK economy in the short term.
Firstly, the reduced leakage from the economy as Britons decide to stay
and spend their money at home. Secondly, the injection of currency from foreign
nationals travelling to the UK to take advantage of the weak pound. Both
factors will help to boost the UK economy, hopefully not just in the major
cities but in parts and communities infrequently explored.
So, where does
this leave us?
Honestly, nobody can be entirely sure and there lies the bigger problem.
As like everything to do with Brexit to date, there is much uncertainty and
each side is attempting to spin the latest developments to win the continued
battle for political ground. A great
article by Larry Elliott in January alluded to as much:
Those who confidently predicted that the economy would plunge
immediately into recession now have an alternative narrative, namely that the
real pain will not come until article 50 has been triggered. This, though, is
not what they were saying six months ago and necessitates significant
post-rationalisation.
The likely consequences of this ever-changing narrative is that the
British public are in for a rollercoaster ride.
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