Consumer confidence plunges at fastest pace in two decades after Brexit vote

GfK Consumer Confidence Barometer registers biggest recorded fall since December 1994 in wake of EU referendum result

Ben Chu
Friday 08 July 2016 07:59 BST
Consumption has been driving UK GDP growth since 2013
Consumption has been driving UK GDP growth since 2013 (Getty)

Consumer confidence took its biggest knock in more than two decades in the wake of last month’s European Union referendum.

The GfK Consumer Confidence Barometer, which saw people questioned between 30 June and 5 July, sank 8 points on the reading taken in the middle of June to minus 9.

It was the biggest recorded fall since December 1994 and suggests economists’ fears about the impact of the shock vote to leave the European Union on consumer spending could be about to be realised.

Biggest drop in two decades


The index had already been declining since the middle of last year and is now at a level not seen since December 2013. The index hit a low of -39 in the global financial crisis in July 2008. It embarked on a climb upwards to positive territory in early 2013, which coincided with the wider economy’s sustained recovery.

Joe Staton of GfK described the post-referendum drop as “very significant”.

Data from the Office for National Statistics shows that consumption has been the driving force behind the recovery over the past three years, with net trade and business investment making a relatively minor contribution.

“Our analysis suggests that in the immediate aftermath of the referendum, sectors like travel, fashion and lifestyle, home, living, DIY and grocery are particularly vulnerable to consumers cutting back their discretionary spending” Mr Staton said.

The pound rose and fell yesterday, ending the trading day flat at around $1.29. FTSE 100 share prices rose 1.09 per cent and the FTSE 250 gained 1.46 per cent.

But financial markets are now pricing in a 78 per cent chance that interest rates will be cut by the Bank of England next Thursday to support the economy. Overnight index swaps imply a 78 per cent chance of a cut next week and an 86 per cent chance of a cut by August.

One of the Conservative MPs vying to succeed David Cameron as prime minister, Andrea Leadsom, yesterday said Mr Carney had done a “brilliant” job in calming markets since the referendum result and said the Canadian would “absolutely” keep his job if she became PM. But she reiterated her trenchant criticisms of his warnings about the economic impact of Brexit in the campaign.

Ms Leadsom told Channel 4 News: “Governor Carney should not have forecast, in my opinion, what households and investors might do. That was the bit I took issue with because it was not balanced, it didn’t say: ‘on the other hand if we remain in the EU x and y might happen’. It wasn’t impartial.”

But Mr Carney’s predecessor, Lord King, said the Governor had acted correctly in the campaign and had “a moral and legal duty to give their view of the risks”.

Speaking at a Wall Street Journal event Lord King added: “The criticisms that were made [or Mr Carney] were way over the top. The people who take those comments least seriously are those who made them. What people say before the vote is very different to what they will say after the vote.”

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