ECONOMIC OUTLOOK
SPENDING by households has fallen to its lowest quarterly level for three and a half years, according to a survey by Visa. Spending fell by 0.3% in June, pulling the quarterly reading down to the lowest level since late 2013. The disappointing survey and other data provided further evidence of slowdown in the UK economy.
The UK’s crucial services sector weakened in June, according to the Markit/CIPS services purchasing managers’ index. The PMI reading declined to 53.4, its lowest level in four months.
The survey found business optimism at its second-lowest level in more than five years, and new orders increasing at their slowest rate for nine months.
Chris Williamson, chief business economist at IHS Markit, said: “Given the deterioration in the forward-looking indicators, such as business optimism and order book growth, the risks are tilted towards the economy slowing in the third quarter.”
PMI surveys for manufacturing and construction were also downbeat. In construction, there was a sector-wide slowdown in employment, business activity and new work. Companies reported reluctance to start new projects, citing uncertainty about the economy.
Combining the three sector surveys, the composite PMI for the UK dropped to 53.8 in June – still indicating expansion but below the market’s expectation of 53.9.
IHS Markit’s Williamson said: “Although the three sector surveys are running at levels that are historically consistent with GDP growing by around 0.4% in the second quarter, it’s clear that the economy heads into the third quarter losing momentum.
“With business optimism hit by political uncertainty following the general election and start of Brexit negotiations, at the same time that households are battling against rising inflation, indications are that the economy’s resilience is being tested.”
The disposable income of families has fallen in each of the three quarters since the UK voted to leave the EU last year, said the Office for National Statistics. After adjusting for inflation, disposable income was 2% lower in the first quarter of 2017 than a year earlier.
The UK’s trade deficit widened by £1bn in May on the back of rising imports. The worse-thanexpected trade gap hit £3.1bn, or a total of £8.9bn for the three months to the end of May.
ONS data also showed UK industrial production falling 0.1% in May, with the sector missing forecasts for the fourth month in a row.
Meanwhile, house prices fell by 1% in June, according to Halifax. The annual rate of growth also slowed to 2.6%, its lowest in four years. The average cost of a UK home is now £218,290.
Martin Ellis, Halifax housing economist, said: “Household finances face increasing pressure as consumer prices grow faster than wages. Combined with the new stamp duty on buy-to-let and second homes in 2016, this appears to have weakened housing demand.”