HOW CON­FI­DENT IS THE UK CON­SUMER AND WHY DOES THAT MAT­TER TO IN­VESTORS?

Shares - - GREAT IDEAS UPDATES -

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.

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