Growth Staged to Slow Following a Brisk Consumer Spending Cycle

Economic conditions weigh heavily on household finances, so keeping up with events is an important part of managing money. Brexit throws a whole new wrinkle in the process, creating never before seen economic conditions. As a result of the pending divorce, there is widespread uncertainty about the future – despite the progress that has been made, working out the details. Some recent indicators reflect the unusual economic circumstances unfolding in the UK, due to Brexit and other factors.

Mixed Messages Leading Up to Brexit

From the time the vote was taken to leave the EU, through the present day, the process leading to Brexit has been punctuated with unanticipated outcomes and events. In many ways, the economy has fared better than some observers expected it would. Recent figures shared by the Office for National Statistics (ONS) suggest that the third quarter showed growth over the prior three month period.

According to the ONS data, the British economy grew by .6 per cent during the three month span to September, when compared to second quarter figures. A similar pace hasn’t been seen since 2016. It is thought the World Cup tournament buoyed spending, and the unusual heat wave experienced across the country also pushed consumer spending higher.

At a time when most businesses were putting the brakes on investment, the economic growth seen in the third quarter relied heavily on consumers loosening their purse strings for the football celebration and spending more than usual during the historic weather event.

Worried about Brexit, UK companies are wary about spending, so the level of investment seen in business and industry is at its lowest point since the global economic meltdown that occurred a decade ago. Business investment has been down for three consecutive quarters, which hasn’t happened since the country was in the throes of the severe economic downturn, beginning in 2008.

In addition to data about consumer habits during the third quarter, the ONS also shared information about other aspects of the economy. According to the ONS report, the country’s balance of payments shortfall has reached its widest level in more than two years. And the national current account deficit has climbed to 36.5 billion pounds.

Can Consumer Spending Continue to Sustain Growth?

With Brexit on the horizon, Britons have logged eight consecutive quarters, during which they spent more than they brought home. The streak represents uncharted economic territory – the longest consecutive stretch of its kind. Some economic indicators reflect it is a positive way, but the trend breaks the most fundamental budgeting rule – you can’t sustain financial balance by spending more money than you bring in.

There is still resistance among the Prime Minister’s opposition, to many aspects of the agreement currently guiding the Brexit process. The possibility of a no-deal exit still remains, adding further uncertainty for 2019. The Bank of England has also recently confirmed that businesses are indeed scaling back investment. Wise households are likely to follow suit, backing-off the type of spending seen in the third quarter.

Solutions for Stretched Households

If your household is one of the many UK residences stretched thin in 2018, you may have to commit to cutbacks in 2019, or risk plodding further down an unsustainable financial path. Reviewing your finances at the beginning of the new year can help highlight savings opportunities. Spending discipline, formal budgeting, and other belt-tightening may be all that’s needed to find better balance.

Despite the economic growth it sparks, overspending often leads to long-term debt, which isn’t healthy for your finances, or for the national economy. When funding’s needed, short-term credit options provide alternatives to credit cards. Even without extensive credit checks, several top lenders issue loans, guaranteed by your pending paycheck. The funds are unrestricted, so you can spend the money how you like. And as long as you pay back the loan, as agreed, the flexible, short-term financing is an agreeable alternative to high-priced revolving credit cards.

UK consumers gave the economy a boost during the third quarter, spending sharply on the World Cup and summer heatwave. With Brexit knocking and households financially strained, consumers can’t afford to prop-up the economy ahead of and following the departure.

Paul graduated in 2001 with a degree in Finance. Since then he has gone on to work for several of the UK's most well-known financial institutions.

An avid blogger and a huge football fan, Paul is here to guide you through the ins and outs of personal finance and perhaps save you some money in the process!

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