Britain’s economy is being stalked by “troubling omens” and the consumer spending boom that has fuelled recent growth could well be close to an end, according to new research from Oxford Economics.
Writing in Oxford’s weekly briefing for the UK, economist Martin Beck argues that despite the strong headline figures in recent economic data, there are some signs that the impact of the vote for Brexit may finally be starting to filter into the habits of British consumers.
According to the ONS’ most recent data release on Tuesday, GDP grew by 0.7% in the fourth quarter of 2016 at the second reading, above the previous reading of 0.6% released in January.
As my colleague Jim Edwards pointed out on Friday: “The upbeat GDP numbers for the fourth quarter were celebrated by the Leave camp in the UK this week.”
However, look deeper and there are worrying indicators that all may not be well with the British consumer. Here’s Beck’s analysis of the numbers (emphasis ours):
“But relative to the recent past, the consumer sector appears subdued. And the expenditure breakdown of Q4 GDP yielded some troubling omens for growth in this area. While 2016 saw consumer spending rise by 3.1%, a 12-year high, growth in the last three months of the year slowed to 0.7% from 0.9% in Q3, the weakest since the end of 2015.
“Meanwhile, a 1.3% cash-terms rise in consumer spending in Q4 dwarfed the 0.1% increase in wages and salaries in the same three-month period. So households appear to have borrowed more or dipped into savings to fund spending, raising a question mark over the sustainability of further growth.”
The economic story that has played out since the referendum so far is a well-trodden path. Initial predictions of economic doom after the Brexit vote have so far failed to materialise — with the exception of the crashing pound — and economic data has broadly held up well.
However, if consumer spending is starting to tail off, that’s a big problem.
The logic is simple — when people are worried about the state of their finances, they stop spending, and when people stop spending, that can signal serious problems on a macroeconomic scale.
Oxford Economics certainly isn’t, by any means, suggesting that Britain is heading for a huge economic crisis, but there are definite signals that the boom times may be over.
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