Consumer

Elaine He oversees Bloomberg Gadfly's data visualization work in Europe and also pursues her own columns combining business and markets coverage. Before joining Bloomberg, she was a graphics editor at the Wall Street Journal and the New York Times.

So much for Brexit triggering an immediate economic meltdown.

While the pound has fallen 13 percent against the dollar since Britons voted to leave the European Union in June last year, the country's economy has performed respectably, so far.

A year later, however, signs the U.K. is approaching a tipping point are building. Britons are paring their spending on clothing, footwear, recreation, culture and household goods. While they're still shelling out more on hotels, restaurants and food, the rate of growth in those areas has cooled since last summer. 

While the economic picture may not be as bad as it was during the financial crisis, consumers are clearly hunkering down as inflation rises and wages stagnate -- spelling pain for retailers, hoteliers and producers of consumer goods. 

Glum Mood
GfK's U.K. Consumer Confidence Index shows Britons are getting increasingly pessimistic
Source: GfK via Bloomberg

Confidence has ebbed to the lowest level since the Brexit vote, according to a survey by GfK, and spending is down. In the second quarter, Visa's U.K. Consumer Spending Index showed expenditure shrinking for the first time since 2013.

No Thanks
Visa's U.K. Consumer Spending Index fell 0.3% in the second quarter
Source: IHS Markit and Visa

When it comes to future purchases of big-ticket items such as furniture or electrical goods, Brits have lost their enthusiasm. That's already hurting sellers of home furnishings and decorations like DFS Furniture Plc or Topps Tiles Plc.

Purchasing Plans
Fewer people say now is the right time to make a big purchase, especially when compared to the last 12 months
Source: GfK U.K. Consumer Confidence Index via Bloomberg

There has already been an impact on the country's driveways. In the three months through June, registrations of new cars fell 10 percent from the year-earlier period.

On the Skids
The pace of new car registrations in the U.K. is slowing
Source: Society of Motor Manufacturers and Traders
Note: Data show annual change in three-month moving average.

It's not hard to see why consumers are retrenching: the cost of buying goods is rising faster than people's incomes. 

The Squeeze
Britons are being hurt by stagnating wages and rising inflation
Source: U.K. Office for National Statistics
Note: Pay is the three-month average of regular earnings.

With real incomes still below their level in 2004, consumers are increasingly putting purchases on plastic.

Real Wages
Accounting for inflation, U.K. workers are paid £33 less a week now than in 2008
Source: U.K. Office for National Statistics
Note: Pay is median full-time gross weekly earnings; average is applied to discontinuities in ONS methodologies.

Credit-card debt expanded by nearly 10 percent in May from a year earlier -- a level that may be unsustainable in the longer term.

Outstanding
Credit-card debt is piling up at a speed not seen since the financial crisis
Source: Bank of England
Note: Data are seasonally-adjusted.

It's not just consumers who are aching. For U.K. companies, the cost of making goods is increasing, too. While a cheap pound makes British exports more attractive, imported raw materials become more expensive. Input prices -- what manufacturers pay for materials -- climbed as much as 20 percent in the months following the Brexit vote after three years of shrinking or low growth. Output price inflation -- which measures the price of goods at the factory gate -- remained stable at 3.6 percent in May.

Producer Prices
Manufacturing costs have climbed sharply after last year's referendum to leave the EU
Source: U.K. Office for National Statistics
Note: PPI is producer price index.

That suggests companies have so far been absorbing much of the cost of rising raw materials, squeezing profit margins. But it's not clear how much longer they can go on doing that. Either margins give, or manufacturers have to start raising prices.

Little wonder, then, that Britain's CFOs are increasingly pessimistic about the future. The number who are less optimistic about their company's prospects is now greater than the number who are more optimistic, according to a survey by Deloitte.

Chiefs' Confidence
The proportion of CFOs with an optimistic outlook has dropped
Source: Deloitte via Bloomberg

Britain's consumers and companies are looking increasingly fragile and more vulnerable to a bad, Brexit-shaped knock.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

To contact the author of this story:
Elaine He in London at ehe36@bloomberg.net

To contact the editor responsible for this story:
Edward Evans at eevans3@bloomberg.net