British consumer confidence plunged to its lowest level since the aftermath of the Brexit vote this month as households and businesses feel the inflation squeeze.
A long-running barometer of consumer confidence fell to a negative reading of 10, a sharp decrease from minus five in May, according to data published today by GfK. That leaves the closely followed measure only two points above its post-EU referendum low.
GfK’s measure of major purchase intentions plummeted eight points this month.
Separate figures, published by Asda yesterday, show Britons' disposable incomes being crunched. UK families had £194 of discretionary spending in May, £4 less than the same month a year before.
Those on the lowest incomes were hit with the biggest fall in disposable income, with their weekly incomes falling by 28 per cent year-on-year.
“The consumer is likely to have a tough year ahead with the squeeze on pay growth intensifying,” said Ruth Gregory, an economist at Capital Economics.
City economists are wary of waning consumption dragging on growth, which has so far proven resilient. Gregory said spending will slow this year after being one of the main drivers of growth last year.
Optimism surrounding the economy has been hit by sharp increases in consumer prices over the past year.
Sterling remains around 13 per cent less valuable against the euro than immediately before the referendum. The consequent higher price of imports caused the consumer price index to expand at an annual rate of 2.9 per cent in May, according to the Office for National Statistics.
Meanwhile the hung Parliament and the resulting weak government have added to uncertainty for businesses as they approach a possible turning point in the economy.
Business confidence dived after the General Election, according to a survey by Lloyds Bank of firms across Britain. The balance of firms reporting they were confident in their prospects surveyed after the election result was only 21 per cent, down from 40 per cent before Prime Minister Theresa May lost her majority.
That drove optimism for the whole economy to its lowest level in five months, Lloyds said. However, business optimism remains well above post-referendum lows, with exporters in particular reporting healthy order books.
Joe Staton, head of market dynamics at GfK, said: “Strong consumer spending has propped up the economy since last June but now the twin pressures of higher prices and sluggish wage growth are squeezing household finances and adding to widespread fears of a Brexit-induced economic slowdown.”