Consumer Optimism Rises As Robust Jobs Outlook Boost Household Spending

British households opened 2017 in a bullish mood as the recovery in business optimism and a positive jobs outlook lifted consumers’ confidence to spend for both discretionary and essential items.

Deloitte, in it’s latest quarterly survey, found that five of its six gauges of consumer confidence went up, even as overall confidence trended lower in the last three months of 2016 compared to the same period in 2015. It said there was a significant increase in essentials spending in the months leading to Christmas. Spending on discretionary items likewise trended higher.

UK citizens also remained optimistic about their career and employment prospects amid a rise in real incomes and a relatively resilient jobs market, as consumers dismissed negative projections about the British economy following last year’s referendum.

Ian Stewart, Deloitte’s chief economist, noted that last year’s Brexit vote has not impacted consumer confidence on jobs outlook, particularly among the younger segment of UK workers.

Stewart attributed the rise in consumer confidence to real wage increases, high employment rate, credit growth and business optimism, noting that these factors kept the consumer confidence index stable.

Despite the upbeat results, Deloitte warns that the numbers may not hold up in 2017 as a weaker pound may push up prices resulting in higher inflation, which could adversely impact consumers’ overall purchasing power.

Elsewhere, analysts expect the Bank of England to upgrade its growth forecasts this week following a better-than-expected performance in the last three months of 2016. Observers are predicting the 2017 forecast to jump to 1.7 percent, from 1.4 percent in November. In August, growth was pegged at a mere 0.8 percent. This week’s revision will be second time in three months as the UK economy continue to defy expectations.

Despite the upward tend, Mark Carney, Bank of England’s Governor, cautioned that UK growth was becoming too reliant on consumer spending. He warns that UK’s consumption-led growth could lose momentum and prove “less durable,” pointing out that consumption growth would eventually overtake earnings growth.

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