The economy has been boosted by a consumer driven momentum but it now seems households are having to deal with a pressure on living standards which haven’t been seen since the economic crisis of the mid-70’s.
The issue is a number of variables operating together – stagnant wage growth, increasing prices and a drop in the savings ratio.
Incomes adjusted for the effects of inflation have now fallen for three successive quarters – this is the first time this has happened since the IMF (International Monetary Fund) had to bail out Britain in 1976.
We have also had figures which showed an unexpected increase in consumer credit, another £1.7B borrowed in May on credit cards, car finance and personal loans.
At the same time the amount being put to one side for savings has now fallen to just 1.7% of disposable income. This is the lowest level on record. Only a year ago it was more than 3 times this rate.
Overall consumers pulled back on spending which affected economic growth of only 0.2%, the lowest of the major G7 nations.
The Bank of England have expressed concern over the rising levels of debt.
There is an argument that the savings ratio has fallen again due to the timing of higher tax payments but the underlying trend is undoubtedly downwards, so the overall position is being watched closely by commentators.
The figures are somewhat at odds with the latest views from some of the Bank of England committee members, who are skewing towards an increase in interest rates. Although this came as a surprise to markets and they have no doubt had to reassess their assumptions on future rates, in doing so many commentators believe that the BOE have sent the wrong signal at time when it is especially important to take a cautious approach on the consumer slowdown.
Indeed some are calling for more stimulus toward the end of 2017 and into 2018 with a further rate cut to 0.1%.
Markets have somewhat taken the above data in their stride but it is no doubt a very critical period ahead and the style of Brexit could have a large impact.
Personal investment portfolios can be impacted by so many factors, included those highlighted above, so we would reiterate that a fluid, flexible portfolio which can also identify global opportunities at this time may be prudent.