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     LONDON (MNI) - Whilst real wages have turned positive in the most recent
ONS data and average weekly earnings are near the important 3% mark, there
appears to be a lull in consumer spending and sentiment that cannot be ignored.
     --Divergence in Spending and Savings Intentions
     The Visa Consumer Spending Index signalled the worst quarter for spending
in over five years, with consumer spending declining 2.1% year-on-year,
following a 1.0% drop in February. Worth noting also is the March 2.1%
year-on-year drop is the tied worst year-on-year growth since October 2012.
     Furthermore, the Visa Consumer Spending Index shows a divergence with the
UK consumers' savings intentions over the next 12 months. Since October 2016,
the savings intentions index has shown an upward trend and the March figure of
19.6 is the highest index figure since June 2016. Both factors suggest that a
continuation of the decline in Visa spending growth is likely.
     Whilst, this diverging trend suggests that consumers would prefer to save
their future income rather than spend it, the nature of the survey has a slight
bias in that ex-ante, consumers are likely to respond positively to saving in
the future however ex-post they may not fulfil their prior intentions.
Nonetheless, the theme of a weak spending pattern holds validity.
     --Present Major Purchases Also Lower
     There also appears to be a downward trend in the European Commission's
major purchases index. Since peaking after a continued rise in August 2015 at an
index value of 14.3, the index has been moving downward and now sits at 0.1.
This would further imply that consumers do not feel encouraged enough to go out
and spend and would prefer instead to replenish their savings or reduce leverage
built up in the backdrop of Brexit uncertainty and negative real earnings until
very recently.
     --Unsecured credit not available to ease the pain
     The notion that consumers are more concerned with saving rather than
spending is unlikely to be helped by the availability of credit data from the
BoE. Unsecured credit availability for Q1 dropped sharply from -12.4 in Q4 to
-38.7 in Q1. This was the lowest in a data series stretching back to Q2 2007
with the previous low of -30.5 recorded in Q4 2008. The implications of this
could be that whilst consumers on aggregate are not looking to spend, those who
would through unsecured credit may find it harder to do so and therefore would
further the effect of a contraction in spending.
     In summary, consumers are either not willing to spend due to negativity
about the future environment or despite positive real wages are not able to
increase spending due to the prior depletion of their savings and increased
borrowing. It may also be a combination of the two factors. This is not
accommodated by the sharp decline in the availability of unsecured credit to
households and paints a unflattering picture for UK consumption.
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |