UK economic sentiment at lowest level for seven years


Economic sentiment in the UK dropped to its lowest level in seven years in August on the back of weak services and a slump in confidence in the retail sector.

Monthly figures from the European Commission showed that while the eurozone had arrested the decline in its economic sentiment, it continued to fall fast in the UK.

The figures highlight the fragility of the UK economy as the Brexit deadline approaches, and were particularly weak among retailers, who recorded the lowest level of confidence for just over a decade.

In its monthly report, the commission recorded a drop in overall UK economic sentiment from 94.3 in July to 92.5 in August, compared with the average of 100 since the commission established the index in 1990.

The figures will worry policymakers since they suggest the economy has not bounced back from the 0.2 per cent contraction in the second quarter and point to further weakness ahead of the Brexit deadline of October 31.

Most of the decline came from the services sector, which has a 30 per cent weight in the overall index. This dropped from -5.9 in July to -15.4 in August, well below its long term average level. It was brought lower by a sudden downturn in service sector companies’ expectations of demand over the next three months.

Consumer confidence, which accounts for 20 per cent of the index, also suffered, dropping from -6.9 in July to -11.4 in August as households became more cautious about their own financial prospects. Until now consumers have remained positive about the future, even as their confidence in the general economy has slumped to levels far below normal.

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The sharpest drop, however, was in the confidence of retailers, which went from -11.7 in July to -29 in August, far below the long-term average of 1.3 for the sector. Retailers complained that current business conditions had deteriorated sharply. They added that they were holding significant stocks and were now much more worried about business conditions in the months ahead.

There was a slight improvement in industrial sector confidence in August, although the reading was weak.

In contrast to the gloomy indications from the UK, the equivalent surveys for the eurozone showed a surprise increase in August, risingfrom 102.7 to 103.1 — one of the few times since the start of 2018 that eurozone economic sentiment has showed an upward monthly movement.

Bert Colijn, a senior eurozone economist at ING, said the improvement in the bloc’s figures suggested it “is not moving closer to a recession in these rather uncertain economic times”.



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