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Sharp fall in UK consumer confidence

Press AssociationPress Association 7/07/2016

Consumer confidence has seen its sharpest drop in more than 20 years since the Brexit vote, with a third of British shoppers believing prices will increase rapidly in the next year.

The worrying figures come as a think tank warned Britain's economy looks set for a significant slowdown after a strong second quarter.

Some 60 per cent of consumers expect the general economic situation to worsen in the next 12 months, up from 46 per cent in June.

Just 20 per cent expect it to improve, down from 27 per cent last month, a one-off GfK Consumer Confidence Barometre survey taken after the referendum has found.

The proportion of people who believe prices will increase rapidly in the next 12 months has jumped 20 percentage points to 33 per cent.

The long-running survey, which dates back to 1974, has not seen a sharper drop since December 1994.

"During this period of uncertainty we've seen a very significant drop in confidence, as is clear from the fact that 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," GfK head of market dynamics Joe Staton said.

Figures released by BDO's monthly High Street Sales Tracker (HSST) show the Brexit vote had an immediate impact on the high street, which suffered its worst June in more than 10 years.

A strong start to June saw overall sales grow 3.8 per cent year-on-year in the first week, but the 'Brexit effect' hit retailers with increasing severity as the month wore on.

Sales saw a 3.1 per cent drop in the second week and by the final week of June - two days after the Brexit vote - overall year-on-year sales had plummeted 8.1 per cent.

"While reports suggest that average income has reached a historic high, the challenge for retailers is to convince consumers to spend their surplus income with them, amid the temptation of a post-Brexit spending paralysis," Sophie Michael, head of retail and wholesale at BDO LLP, said.

Meanwhile, Britain's economy looks set for a significant slowdown after a strong second quarter, a think tank says, based on data mostly recorded before last month's decision by voters to leave the European Union.

NIESR estimated Britain's economy expanded 0.6 per cent in the second quarter, up from a 0.4 per cent increase in the first three months of the year.

But it warned the acceleration was driven by a surge of activity in April, adding that gross domestic product likely stagnated in May and contracted in June.

"What it does suggest is that when April drops out of the three-month calculation we should see a quick deterioration of growth, especially if the estimated contraction in June persists or accelerates into July and beyond," Jack Meaning, a research fellow at NIESR, said.

The Bank of England has taken steps to ensure British banks keep lending as the financial consequences of the referendum decision began to materialise, especially in commercial real estate.

Governor Mark Carney has said he expects the Bank to pump more monetary stimulus into the economy over the summer.

Surveys of British firms published by Markit/CIPS, conducted mostly before the June 23 referendum, suggested Britain's economy is growing at a quarterly pace of just 0.2 per cent.

A YouGov/CEBR survey on Tuesday showed business confidence dropped sharply after the referendum result.

NIESR warned before the June 23 vote that Britain's economy would likely end up around 1.0 per cent smaller in 2017 in the event of a Brexit vote than if the country decided to stay in the EU, and would be 2.3 per cent smaller in 2018.

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