Quarterly Outlook
Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges
Althea Spinozzi
Head of Fixed Income Strategy
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July UK Consumer Confidence Index: The pain is real
Christopher Dembik
Head of Macroeconomic Research
Summary: The GfK consumer confidence index in the United Kingdom casts doubt on V-shaped recovery. In July, it remains in depressed territory, at minus 27 versus prior at minus 30 in June and expected at minus 26. The only bright spot is the pickup in personal financial situation over the next twelve months, which is mostly due to higher saving rate.
This is another disappointing headline for the United Kingdom. This morning, GfK reported that its composite index of consumer’s confidence, which dates back to 1974, improved slightly less than expected at minus 27 vs consensus at minus 26 in July. Though it has increased by nine points since the end of May, the index is still way below its pre-crisis level, when it was standing at minus 9. Looking into details, the climate for major purchases is a little bit better, at minus 27 vs minus 32 in June. It seems that the reopening of entertainment venues did not boosted as much as expected the public’s mood and propensity to consume. The only real bright spot is the pickup in personal financial situation over the next twelve months. It is back to zero, which is only three points below its pre-crisis level, as a consequence of higher saving rate in the lockdown and post-lockdown periods. The willingness-to-save gauge is at 21, which is the highest level since October 2019. However, in order to have a sustained rebound in growth of consumer’s spending in the coming quarters, the savings rate has to stop climbing, which is highly uncertain at this stage. We fear that the acceleration in job losses coupled with the end of the furlough scheme will continue to depress consumers’ spending in the short- and medium-term. On top of it, Brexit deadlock might also weight negatively on confidence, at least until the very end of the year, when we expect a last minute agreement will signed between the UK and the EU on future trade relations.
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