Is Consumer Confidence Regaining Momentum Amid Brexit Uncertainties?

The British households' confidence is holding firm, showing "amazing" stoicism, despite uncertainty increasing by the day as the country heads for Brexit. The GfK consumer confidence index, a measure of consumer confidence published on 28 February 2019 by the market research company, improved slightly to -13 from -14 in January. Amid the increasing risk of the UK exiting European Union without any deal in place, economists had predicted a fall to -15, the worst reading since the middle of 2013. [optin-monster-shortcode id="wxhmli4jjedneglg1trq"]

The index was undertaken on the European Commission's behalf between 1^st Feb and 14th Feb and is closely watched by Bank of England and other policymakers. It gauges the consumer's confidence across five categories. Though it showed an improvement over the last month, it is still three points lower than the value for the corresponding month last year. It is worth noting that the January number was the weakest in five years. GfK said the continued stability in consumer confidence was surprising and despite growing uncertainty regarding future relations with the European Union, it is not showing the kind of slide it experienced post the Brexit referendum in June 2016.

Consumer confidence is a critical economic indicator as two-thirds of national income comes from household spending, which can be adversely affected if consumers fear a slowdown is nearing. The pessimism in the market shot up in November, as Brexit talks got more convoluted, hitting confidence in the economic outlook.

Of the five metrics measured within the index, three rose whereas two remained constant, reflecting the wait-and-see approach towards the Brexit outcome. Joe Staton, Client Strategy Director at GfK, said that "consumers are like markets" and seek certainty, which is becoming more elusive with each passing day. The ‘General Economic Situation' of the country during the past year increased two points but was still four points lower than in February 2018. Moreover, the corresponding value for the next twelve months was 12 points lower than February 2018. Mr Staton likened this to the "calm before the storm" with potential adverse outcomes for the economy.

Other data published on Thursday reported that the country's housing market remained stable but was weak in February. House prices increased by 0.4 per cent, a small rise following stagnation in January. Moreover, the major purchase index rose by three points in February, reaching a score of five. The index was more by three points compared to January and five points more than the value in 2018.

Consumption expenditure by the country's consumers has so far helped the economy to weather the pressure of Brexit. Spending, in turn, has been propped up by the combination of slower inflation and gradually rising wages, amid tight employment market. These economic conditions are expected to continue in 2019 as well. However, dark clouds are starting to gather over the economy as more employers are showing signs of anxiousness and, according to official data, business investment fell throughout 2018.

Recently Prime Minister Theresa May got a two-week reprieve from the parliament after many MPs threatened to rebel against a no-deal Brexit. According to the new schedule, vote on her deal will be held on March 12. If it is voted down, she has promised parliament will get an opportunity to decide whether to leave with no agreement or seek an extension. In another U-turn by a party head, Jeremy Corbyn has given his support to a new referendum on Brexit, amid rebellion in his party.

Till now, a strong job market coupled with subdued inflation with better wages, has given a push to consumption. However, this heating in the economy may not last for long before investments, and thus employment decisions start getting impacted by Brexit. Early signs in the form of decreased car sales and production can already be seen. Although the chances of hard-Brexit have reduced drastically, May’s government needs to make sure that inflation must not spike post-Brexit, causing a big jolt to the consumers’ confidence.