Economy

UK economy lifts spirits but gloomy view of 2017 remains

Survey indicates consumers may be starting to rein in spending

Photograph: iStock

Tue Jan 31 2017 - 08:23

The UK economy's better-than-expected performance since the Brexit vote is helping to lift consumers' confidence, though they haven't fully shaken off their gloomy view of the outlook for 2017.

GfK’s household-sentiment index increased for a second month in January, but remained below zero for a 10th month. A measure of the economic outlook was at minus 23, far below its level a year ago, and consumers’ appetite for making major purchases declined, indicating they may be starting to rein in spending as inflation picks up.

Consumer spending and the dominant services industry have driven economic growth since the vote to leave the European Union in June, a recipe for expansion that's set to be tested this year. Joe Staton, head of market dynamics at Gfk, said "stubborn concerns" about the wider economy are keeping overall sentiment "gloomy".

Separately, job-search engine Adzuna said that advertised salaries started to rise in January, though they are still 3.1 per cent lower than a year earlier. The evolution of wages will be key in determining whether consumers can continue to drive the economic expansion.

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“Rising inflation and weak income growth is forecast to squeeze households’ disposable income, and these two factors could conspire to depress confidence,” Mr Staton said. “It’s certainly difficult to see where the oomph will come from over the short term.”

A separate business confidence index from Lloyds Bank decreased to its lowest level in four months in January. Companies in the consumer services sector were the least confident about prospects for their own business and wider economic momentum.

Bloomberg

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