UK economy risks being hit by Brexit worry

Bloomberg

British consumers are worried about prospects for the economy with Brexit on the horizon, and that could spark a shift in behaviour that drags even more on growth.
Households have driven expansion for more than a year, but only because they saved less to keep up spending during 2017’s inflation surge. They may be less willing to do so if their concerns about weakening growth — and their job security — stay elevated.
According to a monthly index from GfK, a measure of expectations is below the 20-year average and consumers “remain resolutely downbeat about the general state of the economy.” A weaker property market, as seen in the latest Nationwide house-price report, could compound fears. Mortgage approvals declined in April, the Bank of England reported. Consumer borrowing, by contrast, rebounded last month to the highest since 2016, suggesting consumers haven’t yet committed to reining in spending.
Dan Hanson, an economist at Bloomberg Economics, says saving is far below a sustainable level, creating a risk of retrenchment. One trigger could be Brexit. The UK’s official exit from the European Union is less than a year away and if the country leaves without a formal deal in place, that could dent confidence.
“The saving rate has fallen off a cliff as consumers carried on spending in reply to a living standards squeeze last year. That stubbornness has left the UK’s biggest spenders in a precarious position, with little buffer to weather any shocks,” said Dan Hanson, Bloomberg Economics.
That means a shock would prompt consumers to save more, which means spending gets cut back and a key support for economic growth disappears.
That would be a further blow to Britain’s high-street retailers, already under pressure, and also the broader economy. Bloomberg Economics estimates that the UK could even “flirt with recession.”
John Lewis Partnership, a owner of chains of department stores and grocers, said that sales are up 1.5 percent so far this year, compared with a rate of 2.7 percent this time last year. Marks & Spencer Group Plc, a 134-year-old fixture of shopping districts, is closing more than 100 of its biggest stores.
More promisingly in the GfK report, overall confidence improved in May and consumers were slightly more upbeat about their personal finances. That’s been helped by a slowdown in inflation and a pickup in wage growth, meaning workers are now experiencing real pay increases once again.
Some of the concern about the economy may be related to the first-quarter, when growth almost stalled in part because of snowstorms.