Another mixed day of trade in stock markets on Friday as UK consumers become increasingly less pessimistic but spend less, and global manufacturing slumps further.
UK consumers less pessimistic, but spending slips in March
Economic data on the UK consumer has been a mixed bag on the face of it this morning but a deeper dive into the figures suggest there’s a little more cause for optimism than the headline numbers suggest.
The most obvious reason for this is that an abundance of rainfall weighed on retail sales last month, as is often the case, depressing the number in a manner you wouldn’t expect to be repeated as we move through spring and into the summer (I say that hopefully from London).
The GfK consumer confidence survey, while still deeply negative, rebounded more than expected this month, continuing the trend of improving sentiment since the Autumn. The economy avoiding recession and being in a better position now than anyone expected naturally helps this.
What’s more, the survey highlights two things. Firstly, UK consumers are a pessimistic bunch, and secondly, their spending doesn’t necessarily reflect this. That said, the squeeze on household finances remains severe, and despite wage growth remaining strong, inflation remains much higher which will continue to weigh on spending.
Can services continue to perform strongly amid increased pressure on budgets?
Strong services and weak manufacturing activity remains the overwhelming trend in the PMI surveys this morning and that is evident from Europe to Japan and Australia. Global trade is suffering but the services sector remains incredibly resilient for now. The question now is whether the darkening global outlook will catch up to services or whether the sector – which in most of these countries accounts for comfortably the largest part of the economy – can power a soft landing and eventually a strong recovery.
That looks overly optimistic at this stage but it may complicate the jobs of policymakers that will be concerned about the implications for inflation and interest rates and if the latter rise further and stay high, it will eventually catch up with the economy and spending overall. Tighter credit conditions on the back of last month’s mini-banking crisis will also complicate things over the remainder of the year and likely weigh on services activity.