Despite the economic uncertainty in the immediate aftermath of the U.K. referendum, consumer spending is holding up comparatively with an increase of 2.14% versus the prior week, reports Barclays. However, Dennis Jose and colleagues highlight in their July 12 research piece titled “Post Brexit: No slowdown yet” that consumers might have adopted a cautious mindset around discretionary spending in the days after the referendum result, despite consumer confidence collapsing to its lowest rate in 22 years.

Consumer spending growth remained steady

After digging through the latest Barclaycard data, Jose and team point out that consumer spending growth has remained level at 3.6% y/y in June, which is the same rate of spending growth witnessed in May. The analysts point out that while in-store growth remained poor at 0.2% y/y, online growth was 15% y/y.

Consumer Spending, UK Referendum, Brexit

The Barclays analysts, at a sector level, expanded the data included in the Spend Trends report to encompass 35 categories across the broader 11 industries. The analysts note that the sectors that witnessed an improvement in spending growth in June included Amusement Parks, Employment Agencies and Sports & Games Establishments. However, poorer weather in June saw spending for Clothing and Pubs slow down somewhat. The analysts point out that Cinema spending fell, perhaps as people opted instead to watch sporting events such as Euro 2016.

Spending by categories

Highlighting some of the hidden mixed underlying news, Jose and team point out that spending in pubs and restaurants dropped 0.44% and 0.46% in the seven days beginning June 24. Of note, these figures are in stark contrast to the growth of 20.5% and 20.1% clocked in the same week of May. This contrasting trend can be attributed to consumers adopting a cautious mindset around discretionary spending in the days after the referendum results, write the Barclays analysts. The analysts express surprise at the drop in pub spending as pubs are usually given a boost from football tournaments such as the European Championships:

Pub spending

Domestically-focused U.K. stocks de-rated by investors

Jose and colleagues note that total retail sales for May 2016 surprised to the upside. They add that the Q216 carry-over is 2% q/q, after 1.3% q/q in Q116, indicating a potential marginal acceleration in household consumption. However, the analysts caution that this positive is set to be short-lived. They argue that following the referendum result to leave the EU, the already-elevated levels of uncertainty are likely to spiral significantly, adversely impacting household confidence. The analysts believe consumer credit conditions are likely to tighten, which will impede households’ ability to spend. The Barclays analysts anticipate a significant deceleration in private consumption growth to 2% in 2016 and to 0.1% in 2017, from 2.5% in 2015:

Household consumption to slow

The Barclays analysts point out that after the referendum result, domestically-focused U.K. stocks have been aggressively de-rated by investors. The analysts note that compared to Barclaycard spending growth data, investors appear to be pricing in a dramatic deceleration in U.K. consumer spending growth to -1%. The analysts believe the initial indications suggest that investors may be a bit too pessimistic about the prospects for consumer spending in the U.K. post-referendum.

De-rating by investors