Investors are braced for darker days as consumers curb outlay

BUSINESSES and investors are braced for a spending slowdown as those who have kept up a shopping spree in the last year run out of “borrowed time and borrowed money”.

Households have continued to spend since the Brexit vote, helping drive up sales among retailers and supermarkets already benefiting from a windfall created by the devaluation of the pound.

The latest cohort of companies to report their year-end results show pretax profits have hit their highest point since 2012 as sales in the year to April rocketed, according to an analysis of the UK’S top 350 listed firms.

The study, conducted by the Share Centre, shows that the ratio of sectors with rising profits compared to those with falls was the highest on record, with just one in 20 businesses posting a loss for the year to March 31 versus one in nine in the previous two years.

While the weakness in sterling only accounted for a small portion of that increase, suggesting the boost came from “real demand, rather than just from exchange rate factors”, the study warned of darker days ahead. “Even those that performed extremely well may not continue to do so,” it said in its conclusion. “Since the beginning of the year, the economy has slowed markedly, sparking a succession of profit warnings. The UK is now the worst performing economy in Europe.”

In a gloomy forecast, the study warned that the “quick wins” enjoyed by some companies from the pound’s devaluation since Brexit are now wearing off, just as the economy stalls and consumers run out of money.

“The consumer has been living on borrowed time and borrowed money,” it said, noting that retailers in particular were starting to signal concerns and issue profit warnings. “As the devaluation-induced spike in prices has bitten deep into household incomes, so consumer confidence and spending power has ebbed away.” As economies grow faster elsewhere, it added that those with significant overseas operations are “likely to do better than those dependent on domestic demand”.

The outlook for Uk-focused businesses follows recent warnings over consumer spending, with the Bank of England saying that outstanding car loans, credit card balances and personal loans are far outpacing rises in income.