(Bloomberg) -- The strain on U.K. consumers from faster inflation, sluggish wage growth and Brexit uncertainty continues to take its toll on the economy, with house prices falling and spending weak.
Nationwide Building Society said home values fell for a second straight month in March, and the Bank of England reported a bigger-than-forecast decline in mortgage approvals. Detailed statistics for the end of 2017 spelled out why households are under pressure, with real disposable incomes falling for the first time in almost a year.
The numbers come one year to the day before the U.K. leaves the European Union, a decision that's had huge repercussions for the economy. The picture they paint is one that's dominated the backdrop over the past year, with the pound's slump after the 2016 Brexit referendum pushing up inflation. That suppressed consumer demand and economic growth, which is forecast to slow for a fourth year in 2018.
Figures from the statistics office showed that, adjusted for inflation, disposable incomes per head fell 0.1 percent in the fourth quarter. Consumer spending climbed 0.3 percent, matching the weakest reading in three years.
That helps to explain the troubles engulfing the retail sector, where stores from home-improvement chain to B&Q to suit seller Moss Bros have warned of difficult trading conditions. The BOE even said this week that it's seeing signs of “financial distress” in the industry.
The General Retailers Index, which includes clothing chains and home-improvement stores, has fallen almost 8 percent this month, making it the second-worst performer in the FTSE 350 Index.
While inflation has cooled in recent months and wage growth is starting to pick up, that good news for households is unlikely to give spending an immediate fillip, with workers still not seeing increases in real incomes. On Thursday, GfK downplayed an improvement in its consumer confidence index in March, saying it's “still a little early to be talking about green shoots.”
What Our Economists Say:“The outlook for consumption growth is probably a little brighter than last year but those hoping for a storming comeback of the Great British Consumer are likely to be left wanting.”--Dan Hanson, Niraj Shah, Bloomberg Economics. Read more here |
Nationwide said in its housing report that London remained the weakest market, with prices down 1 percent in March from a year earlier. That tallies with other surveys that show the city is taking the biggest hit after years of outperformance.
Read more: London's Struggling Property Market Only Has One Hotspot Left
Nationwide Chief Economist Robert Gardner cited subdued confidence and the hit to workers' pockets from inflation.
“Subdued economic activity and the ongoing squeeze on household budgets is likely to continue to exert a modest drag on housing market activity,” he said.
--With assistance from Mark Evans and Ainhoa Goyeneche
To contact the reporters on this story: Fergal O'Brien in London at fobrien@bloomberg.net, Lucy Meakin in London at lmeakin1@bloomberg.net.
To contact the editors responsible for this story: Craig Stirling at cstirling1@bloomberg.net, Andrew Atkinson
©2018 Bloomberg L.P.
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