UK consumers reduced spending pre-Brexit - ING

James Smith, Economist at ING, notes that the UK retail sales fell in the lead up to the referendum, although it is unlikely that uncertainty surrounding the vote is completely to blame.

Key Quotes

“UK consumers bought less than expected in the run up to last month’s referendum, with ex-auto fuel retail sales falling by 0.9% MoM. Although the ONS said that some of the data collection covered the days following the referendum, it is unlikely that this fall is entirely attributable to vote-related uncertainty. June was unseasonably wet, which is probably one reason why retailers saw decreased sales last month. The Euro 2016 spending boost doesn’t seem to have materialised, with food store sales down by 1.2% MoM. It is also worth noting that this series has been especially volatile for several months now, so it is possible that there are some statistical factors at play too (June's data effectively netted out May's 0.9% MoM increase in sales volume).

A GfK survey conducted immediately following the vote suggested that consumer confidence took a sizeable hit following the decision to leave the EU, which suggests that spending could decrease over the next few months. Although yesterday’s BoE Agents’ summary indicated that, for now at least, firms are taking a “business as usual” approach to hiring, job creation is expected to slow in the medium term. If this makes individuals less confident about job security, then this could ultimately weigh on consumer spending over coming months.

As a result, we expect the Bank of England to cut rates and boost QE when it meets next month, in order to help boost near-term confidence and counteract some of the economic effects of heightened uncertainty.”