Brits are feeling just as optimistic about the state of the UK economy as they were before the referendum, a leading indicator has revealed.
GfK’s consumer confidence barometer, out today, has bounced back to levels last seen in May and June, before the UK’s historic vote to leave the EU sent the index crashing at its fastest rate since records began in the late 1970s.
On an index where positive scores indicate overall optimism, the GfK reading came in at minus one, up from minus seven in August and minus 33 in the political turmoil of early July.
“British consumers appear to have shrugged off Brexit fears about the economy as wages continue to grow faster than prices, rising employment boosts income, and low interest rates encourage people to spend rather than save.”
GfK also found consumers intend to carry on making major purchases in another boost to the UK economy’s post-referendum prospects. Economists had feared big ticket items like cars and holidays would be the first to feel the pinch if fears over economic uncertainty or job security knocked spending.
While consumer spending has remained resilient, the outlook for businesses has been hazy.
The Lloyds’ business confidence index, another highly-watched indicator of how the UK economy is performing, today showed employers are also more confident about how the next 12 months will pan out.
The headline score, which measures the difference between the number of businesses who are feeling optimistic and pessimistic, climbed eight points to 24 in September. That was up from a score of just six in late June, and only slightly down the longer-run pre-referendum average of 32.
Employment intentions also hit their highest level for one year, with the balance of firms saying they intend to take on staff climbing to 39 per cent.
However, Hann-Ju Ho, a senior economist at Lloyds Bank said there were signs of “softness” among individual businesses, suggesting while confidence in the wider economy has bounced back, the expectations of individual firms still “point to a slowdown in economic growth".
Other analysts suggested the prospect of rising inflation, as a result of sterling's sharp depreciation, could test the post-referendum resilience.
Given that the UK imports much of its essentials like food and energy, a depreciated sterling will hit both households’ disposable income and businesses’ input prices," said Michael Martins at the Institute of Directors.
"As firms’ bottom lines come under pressure, it is likely that they will cut back on investments like wage increases, decreasing real disposable income," he added.
KPMG's head of macroeconomics, Yael Selfin, said businesses were already experiencing higher prices with some having discussions about the extent and speed with which they could raise prices.
She added: "The interesting bit is the stronger the economy is in the medium-term the more likely it is that companies will pass these costs through quickly. Overall we've seen consumers resilient so you might expect things to be passed through more quickly than otherwise."