“Fears about a potential Brexit” seem to be the go-to explanation for almost any sign of economic weakness at the moment.

Given that consumers have been the backbone of the overall economic recovery in recent years, naturally attention has turned to whether they are managing to shrug off this uncertainty.

Admittedly, the timing of Easter this year, combined with volatile weather conditions, has made it difficult to cut through the noise and get a clear reading of the strength of high-street spending at the moment. Retail surveys in particular have been rather downbeat, and anecdotal evidence corroborates this picture.

“It would be hard to pin any slowdown on Brexit worries. After all, consumer confidence actually ticked up in May, as did the confidence to make major purchases”

Paul Hollingsworth, Capital Economics

But according to official statistics at least, the three-month average of the annual growth rate in sales volumes (which should be relatively free from such distortions) has been holding up relatively well, at around 4% so far in 2016.

That said, this is still slower than the 5% or so rates of growth a year ago. What’s more, it partly reflects heavy discounting by retailers. Indeed, growth in sales values has been much less spectacular (see Chart 1).

Brexit Chart2 Hollingsworth

Brexit Chart2 Hollingsworth

Growth in sales values has slowed

It would be hard to pin any slowdown on Brexit worries, though. After all, consumer confidence actually ticked up in May, as did the confidence to make major purchases (see Chart 2). Moreover, a recent YouGov survey indicated that consumers generally do not think a Brexit would make much difference to their personal financial situation.

Brexit Chart1 Hollingsworth

Brexit Chart1 Hollingsworth

Consumer confidence was up in May, as was the confidence to make major purchases

Accordingly, if Brexit isn’t to blame, then this clearly limits the scope for a post-referendum rebound in the second half of the year, assuming the UK votes to remain in the EU next month!

Looking up

Nonetheless, there are reasons to remain optimistic about the outlook for spending later this year. While Brexit may not be directly dampening consumers’ spirits, it is partly to blame for the weakening in other areas of the economy and subsequent lapse in the pace of the jobs recovery. Indeed, there is some evidence suggesting that firms have been put off making hiring decisions recently.

“If the UK votes to remain, we would expect some renewed vigour in employment and earnings growth in the second half of this year”

Paul Hollingsworth, Capital Economics

If the UK votes to remain, we would expect some renewed vigour in employment and earnings growth in the second half of this year. And with inflation going nowhere fast, consumers should continue to see decent rises in their real spending power.

There appears to still be scope for consumers to drive the overall economic recovery for a while longer yet.

  • Paul Hollingsworth, UK economist, Capital Economics