How confident are you? It matters....
Consumer confidence is vital for the success of the economy because of the way it affects spending behaviour. When consumers are feeling confident they spend more and that helps to drive economic growth. In fact, it may surprise you, but household spending is the biggest driver of the UK economy. It accounts for about 60% of all domestic expenditure – more than three times as much as the government – so any pick up (or fall) in consumer’s activity affects the rate of economic growth.
How much households spend is affected by lots of things, but confidence is really important. Movements in consumer confidence signal what happens to spending, but also what will happen to housing market activity. Developments in the housing market and consumption are closely linked. Indeed, house price inflation and consumption growth have moved closely together in the past.
In large part, that close relationship is because household decisions to consume or buy property are driven by common factors such as income growth, confidence and financial conditions. However, when the housing market is healthy, households feel richer and more confident about spending – giving economic growth an extra boost.
Consumer confidence has held up well in recent months, despite the uncertainty households face about Brexit and the outcome of the election. So it is possible that spending growth could bounce back a little, and that the housing market could pick up slightly. The big thing in favour of both events is the availability of finance. With the cost of borrowing at historically low levels households may be able to take advantage of credit to smooth them through the current period of weak wage growth. That will help to stabilise the economy and with economic growth supported, buyers and sellers may find the confidence they need to move house.