Consumer confidence is wobbling and growth is slowing. Is the long awaited Brexit blowback with us?

British consumers have kept Brexiteers happy over the last few months. As inflation bites an increasingly expensive shoe might soon be on the other foot 

James Moore
Chief Business Commentator
Friday 28 April 2017 14:06
Comments
Shoppers have started to reign in their spending
Shoppers have started to reign in their spending

The predictions of an immediate economic shock as a result of the Brexit vote proved groundless, but it might now belatedly be starting to happen.

The economy recorded its slowest growth in a year in the first three months of 2017, according to the first official estimate published by Office for National Statistics, coming in at 0.3 per cent, a tick below the 0.4 per cent expected by economists.

A big reason for the slowdown from the 0.8 per cent of the previous three months is that consumers are reigning in their spending thanks to the rising prices caused by the weak pound. The latter was the first tangible economic impact of the EU referendum's outcome.

It took time for the effects of the currency's fall to wash through the economy, but now they are being felt in the form of rising price inflation, consumers have taken note.

YouGov, the pollster, said worries about job security and living costs resulted in its monthly measure of their mood falling a further 1.5 points to 108 in April. That still indicates more people are confident than not, but it's the weakest reading recorded since July last year, immediately after the referendum.

Meanwhile, the monthly GfK Consumer Confidence Index declined one point to minus 7 this month. Only a slight fall, it's true, but a fall all the same.

If this is the beginning of a trend, economic policymakers have real cause for concern. The UK consumer propped up the economy in the months after the Brexit vote, cushioning it from other malign effects, such as a reduction in investment and the real fears expressed by businesses over the outlook for them.

If UK plc is now about to loose its favourite crutch, there may be trouble looming for a new Government taking office in June.

The UK remains a member of the European Union, but as its exit looms, with the potential for serious disruption from the Government’s addiction to a hard Brexit, it is quite hard to see what might emerge to keep the economy chugging along.

The City certainly isn't going to pick up any slack. Its banks and other institutions are busily seeking office space for the people they’re going to relocate to Dublin, or to Frankfurt, or to Paris, the consequence of the Government (likely) surrendering the single market passporting rights allowing financial services outfits registered in one member state to trade across the bloc.

A resurgence in investment among other businesses? Are you kidding? The Government has been able to tout commitments from the likes of Google, and Facebook, and one or two others; companies that might quite like the idea of the UK becoming the world’s biggest offshore tax haven.

But the majority of firms operating here are likely to sit on their hands until they have a better handle on what’s going to happen. Who could blame them?

Manufacturing. Surely that’ll pick up thanks to Theresa May’s shiny new industrial policy? Erm, have you seen the surveys showing that a disturbingly high proportion would join the banking exodus if they could? They have no desire to lose access to the world’s biggest single market. Why would anyone in their right minds pass up on such a thing?

Brexiteers would. They’ve had some fun pointing to the surprisingly robust growth figures the UK produced in the months following the referendum.

If the latest numbers are the harbingers of the Brexit blowback most of us predicted, the shoe may be on the other foot after the election. As I wrote yesterday, the first poll has been released showing a majority think Brexit is a mistake. I’m willing to bet we’ll see quite a lot more of them if the latest economic wobbling turns into something more serious and long term.

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