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U.K. Consumer Spending Power Weakens; Economy Forecast to Cool

  • Consumer confidence weakened in first quarter, Deloitte says
  • Separate survey predicts economy cooled in first quarter

U.K. consumer confidence weakened in the first quarter and households were the most pessimistic on their finances in more than two years, according to a study from Deloitte LLP, developments that may weigh on the economy.

Deloitte’s consumer sentiment gauge fell 1 percentage point from the previous quarter to minus 7 percent, while a measure of confidence in disposable income dropped 3 points to minus 17 percent, it said in a report Monday.

Inflation is already weighing on consumer spending, with data on Friday showing U.K. retail sales plunged the most in seven years in the first three months of 2017. The pressure on households doesn’t bode well for an economy that relies heavily on consumer spending. Data due April 28 is forecast to show economic growth slowed by almost a half in the first quarter.

“Since last summer’s EU referendum consumer spending has held up well, but with inflation rising and nominal wage growth starting to slow, consumers are beginning to feel a squeeze,” said Ian Stewart, chief economist at Deloitte.

Household expenditure has played a large part in the economy’s strong performance since the Brexit vote in June, partly as consumers borrowed heavily and saved less. That trend may be at risk at a time of heightened economic uncertainty as Britain begins talks to leave the European Union, while faster inflation and modest wage growth could squeeze shoppers.

Still, record employment and low interest rates should help Britain avoid a sharp drop in consumer spending, Deloitte said.

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