HOW CONFIDENT IS THE UK CONSUMER AND WHY DOES THAT MATTER TO INVESTORS?
UK living standards are starting to rise again in a boon for consumer confidence, although rising petrol prices mean disposable incomes remain pressured and retail sales data is volatile at best.
GfK’s Consumer Confidence Index highlights confidence remains fragile with the index decreasing by two points to -9 in April for a 28th consecutive month without a positive overall index score.
However, retail sales rose by a better-thanexpected 1.6% in April as consumers resumed spending following a long period of unseasonably cold weather. In March, sales had fallen by 1.8% and recorded their biggest quarterly fall in seven years, according to figures from the Office for National Statistics.
Mike Bell, global market strategist at JP Morgan Asset Management, says retail sales are highly correlated with consumer confidence and wider consumption which makes up a significant part of UK GDP.
For those investing in the FTSE 100, Bell stresses that global growth matters more as the majority of revenues for the largest UK companies come from abroad.
But if you own shares in UK domestic businesses, the state of the UK economy and consumer confidence levels are extremely important to your investments.
Put simply, more jobs and higher pay feed through to increased spending which should boost corporate earnings – the latter is a key driver of share prices. In contrast, a weak economy and worried consumers can lead to reduce spending which hurts corporate earnings.