Young people optimistic about economy despite Brexit, says study
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Version 0 of 1. A surge in optimism among young people about jobs and spare cash helped maintain robust consumer confidence in the last three months of 2016, despite fears about Brexit. Spending on essentials, such as groceries, and discretionary items, including meals out, increased as confidence among the 18-34 age group rose to its highest level since advisory firm Deloitte began its quarterly consumer tracker, according to the latest data. The findings come as the Bank of England is expected to upgrade growth forecasts for the second time in three months on Thursday as the UK economy continues to defy expectations of a sharp Brexit slowdown. Analysts at HSBC said the Bank’s growth forecasts were likely to rise to 1.7% for the year, up from 1.4% in November. The economy’s resilience has confounded forecasters, some of whom expected the UK would slip into recession following the shock outcome of the EU referendum last June. However, economists are still predicting a slowdown this year as higher inflation kicks in as a result of a slump in the value of the pound against the dollar and the euro, which has increased costs for businesses. The Bank’s governor, Mark Carney, indicated last month that he was likely to raise growth forecasts but said growth was being fuelled by consumer spending and so likely to be “slower and less durable”. Deloitte warned that spending on non-essential items was likely to fall in the next three months as the cost of groceries and other everyday basics rises. Fears about spending were also fuelled by a 2% drop in confidence about disposable income in final quarter of 2016 to -14%. Confidence among young people moved into positive territory but optimism worsened among the 35-55 bracket and the over 55s. While it was the best for the end-of-year quarter since at least 2011, overall confidence levels were 1% worse than in the previous three months. Ian Stewart, chief economist at Deloitte, said: “So far, Brexit has not dented consumers’ confidence about the outlook for jobs, particularly among younger workers. Rising real wages, credit growth, high employment and rather more positive business confidence have bolstered consumer spirits and have kept consumer confidence levels stable, and higher than 12 months previously. “However, the new year sees the arrival of headwinds that may challenge the current consumer-friendly economic conditions. “Falling confidence about disposable income may be a sign that we are seeing the start of a squeeze on household incomes. Rising inflation, largely driven by the weakening pound in recent months, will also put pressure on real incomes and consumer spending in 2017.” That prediction was supported by an easing in the pace of growth among private sector companies in the three months to January, according to a CBI survey. The growth indicator poll of 753 manufacturing, distribution and service business revealed that growth eased to a balance of +10%, well below December’s +17% but similar to the pace seen in November and October. Rain Newton-Smith, CBI chief economist, said: “Resilience has been the hallmark of the UK economy since the EU Referendum. “But higher inflation is on the way, which will erode consumer incomes, while the impact of uncertainty since the referendum may cause investment spending to slow this year.” Inflation jumped to the highest rate for two and a half years in December, hitting 1.6% after a jump in air fares, food prices and fuel. The December rate, as measured on the consumer prices index (CPI), was the highest since July 2014. The Bank of England is one of the more conservative forecasters, predicting that inflation will hit 2.8% by the middle of 2018. Over the same period, the National Institute for Economic & Social research forecasts that a combination of the low pound and rising wage levels will push inflation to nearer 4%. Alan Clarke, an economist at Scotia Bank, said the path of inflation was proving hard to predict, but he believed Threadneedle Street would nudge its forecast higher to 3% at its meeting this week while keeping interest rates on hold. Most analysts believe the central bank will maintain its base rate at 0.25% this year as uncertainty surrounding the outcome of article 50 talks between Britain and the EU undermines investment and jobs growth. |