LONDON: UK consumers’ views on Brexit shape their outlook on the economy and impact household spending in measurable ways, according to an analysis by Bank of England staff, although ultimately the circumstances of individual households are more important.
A blog post on Bank Underground, where Bank of England staff can share views that challenge – or support – prevailing policy orthodoxies, looked more closely at the NMG Consulting survey of households carried out twice a year for the Bank and which, since September 2016, has included questions about attitudes towards Brexit.
In the months after the 2016 referendum, the authors noted that individuals’ expectations for spending, income and their financial situation had deteriorated only modestly.
“But by viewing the results in aggregate, we miss some important action – namely the difference in attitudes between ‘leavers’ and ‘remainers’, “ they added.
“For the ‘remainers’, there was a significant deterioration in their outlook for the future after the referendum. The opposite is true for ‘leavers’.”
And when looking at reported changes in spending, they found that ‘leavers’ were likely to report a more positive change in their spending compared to ‘remainers’.
Specifically, the authors estimated that ‘leavers’’ consumption grew at around 3.2% in the year to April 2017 – 0.3 percentage points higher than that of ‘remainers’.
Repeating the same calculations on the basis of changing household finances rather than political view, however, found that those seeing an improvement in their financial situation had a consumption growth rate 1.6 percentage points higher than households for which it had got worse.
The referendum has affected ‘leavers’ and ‘remainers’ views about the economic outlook in different ways, the authors conclude.
“This appears to have followed through into their spending behaviour. But the effects are small relative to the influence of households’ personal circumstances.”
The most recent Bank of England Quarterly Bulletin (Q4 2017) notes an increasing number of respondents to the NMG survey expect Brexit to increase their spending in the next twelve months – which parallels a decline in households’ assessment of the effects of Brexit on the UK economy.
This is explained by the rise the cost of living that has followed from the depreciation of sterling.
Sourced from Bank Underground, Bank of England; additional content by WARC staff