UK Consumer Confidence and GoldThe U.K's consumer confidence index has declined as the market predicts an adverse economic environment in 2017. This decline is supposedly the result fears of a negative Brexit impact on the U.K economy. However, is this fear the result of realistic concerns or exaggerated panic that will not materialize?
The bad consumer confidence data comes on the heels of positive GDP data. So far, the negative predictions have simply not come to pass. The British economy has grown 0.5 percent this quarter, significantly beating the analyst expectation of 0.3 percent and the retail sales index is doing great over the long term.
Where is The Pessimism Coming From?
It can be argued that the media and government are artificially injecting pessimism into the economy and turning their negative predictions into a self-fulfilling prophecy. Consumer optimism is vital for a healthy economy, and if the British consumer is scared out of spending the smooth transition out of the EU will be impossible.
Granted, the prospect of inflation is a real risk for the British economy, and this cannot be discounted. As a weaker pound buys less foreign goods, more money will need to be spent, and the velocity of money will increase resulting in inflation. However, so far, this impact has been defrayed by rising wages and a more favorable balance of trade, and there is little reason to expect this trend to end. The U.K Pound has undergone a huge drop since Brexit, and further losses are unlikely. All in all, the prediction of weak consumer spending in 2017 should be taken with a grain of salt, although they certainly are possible.