UK consumers expect doom and gloom, could cut back on discretionary spend says report

By

Sandra Halliday

Published
Mar 23, 2017

British consumer spending is expected to weaken this year and next as consumers worry about rising inflation and stagnating wages, a new survey from consultancy IHS Markit shows.

Reporting the most negative view of household finances since November 2013, the researchers said the index measuring household expectations for finances in 12 months’ time dropped to 45.3 in March, from an already-pessimistic 48.1 in February.

Londoners, people in the East Midlands and those in the Northeast had the most negative outlook and with consumers expecting their finances to be squeezed in the future, they could start to cut back very soon.

Linked to what Next on Thursday called a “sectorial shift” in what consumers spend their discretionary cash on, this is bad news for the fashion sector. Next reported weaker results Thursday and said consumers are increasingly choosing to spend their spare money on anything but fashion.

Tim Moore, senior analyst at IHS Markit, said: “UK households reported greater pressure on their financial well-being in March, as rising inflation has started to erode incomes and reduce cash available to spend. On average in the first quarter of 2017 survey respondents have reported the sharpest increase in their everyday living costs for three-and-a-half years.
 
“A combination of rising inflation and subdued pay trends has forced households to recalibrate their expectations for the year ahead. After holding steady last summer, UK consumers are now more downbeat about their financial outlook than at any time since late 2013.”
 
As well as the woes caused by higher inflation that are hitting the gains made from higher wages, UK householders expect their mortgage costs to rise with 58% believing the Bank of England will raise interest rates in the next 12 months.