U.K. Consumer Sentiment Dives Most Since 1994 on Brexit Effect

  • Rapid price increases expected by 33% of respondents
  • Number of people placed in permanent jobs fell in June: REC

U.K. consumer confidence plunged the most in 21 years, the latest sign that Britons’ vote to leave the European Union is harming the nation’s outlook.

Gfk’s core index slid to minus 9 in a special post-referendum survey conducted from June 30 to July 5, from minus 1 earlier in June. That’s the biggest slide since December 1994 when increases in tax, interest rates and job insecurity weighed on spending. While confidence among respondents who said they voted to remain in the EU dropped to minus 13, the decline was tempered by a lesser slide of minus 5 among those who said they opted to leave.

Anxiety is growing as investors and households try to gauge the economic ramifications of the June 23 decision. With both major political parties engaged in heated leadership battles and the politicians who campaigned to leave slow to put forward plans of what a post-Brexit relationship with the EU will look like, the exit strategy may remain unknown for months to come.

“During this period of uncertainty, we’ve seen a very significant drop in confidence,” said Joe Staton, head of market dynamics at GfK. “Every one of our key measures has fallen, with the biggest decrease occurring in the outlook for the general economic situation in the next 12 months.”

Bleak Consumers

The impact of uncertainty is becoming increasingly evident, with a Lloyds Banking Group Plc gauge Thursday showing business sentiment sank in the days after the referendum. The last time U.K. consumer confidence plunged as much as in the GfK survey, Bon Jovi and Celine Dion had top-10 songs and Cindy Crawford was announcing her separation from Richard Gere.

QuickTake Brexit

That’s being reflected on the high street. U.K. retailers had their worst June in a decade as shoppers reined in purchases before the referendum, according to figures from accounting firm BDO. That confirms comments from retailers including Marks & Spencer Group Plc that Britons trimmed spending in the lead-up to the vote.

GfK’s regular June survey, conducted before the vote, suggested consumers were becoming gloomier even before the Brexit outcome, while the National Institute of Economic and Social Research said its monthly estimate for June gross domestic product showed an “intensifying contraction.”

Six in 10 respondents in GfK’s special survey of 2,002 people said they expect the economic situation to worsen in the coming year, up from 46 percent in the June survey. The proportion of people who believe prices will increase rapidly in the same period jumped to 33 percent from 13 percent. The report noted a greater drop of confidence among those living in the north of England and Scotland than the south, including London.

“The survey results are grim,” Allan Monks, an economist at JPMorgan Chase in London, wrote in a note to clients. “This is adding to a sense that the economic shock from the Brexit vote will be significant. We think the Gfk raises the risk of recession, but by itself we do not think there is yet enough evidence to change our call for a near stagnation in growth” in the second half.

Anecdotal evidence indicates that apprehension in the lead up to the vote also hurt hiring, according to a report by Markit for the Recruitment & Employment Confederation. The number of people placed in permanent jobs fell for the first time since September 2012, according to a survey of 400 U.K. consultancies from June 13-24. Growth in temporary and contract staff billing was the lowest in nine months.

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