The UK and the EU

The UK vote to leave the EU is a pan-European issue. And this month we comment on the impact of the vote and what is likely to happen next.

The immediate impact

Mintel’s consumer confidence tracker showed that in the immediate aftermath of the EU referendum vote consumer confidence dipped.

There were conflicting stories from the housing market - that the fall in sterling led to interest in foreign buyers, but that the exit vote combined with the increase in stamp duty for buy to let deals has led to a sharp fall in local activity.

Sterling fell sharply, but there is no hint of rising interest rates, and even talk of a further cut.

The new Chancellor has promised an end to any objective of balancing the books by 2020.

European reactions

Mintel commissioned consumer research around the other major European economies in the aftermath of the Brexit vote and the message comes through that other Europeans are concerned about the impact as well. In fact, the reactions outside the UK are remarkably similar to those inside. 27% of UK consumers expect their income to suffer from Brexit, against 25% in Italy, 24% in Poland and 20% in France and Spain.

Time scales

It's important to get the potential impact in perspective.

In the short term - say up to six months - any impact will only be due to consumer sentiment and consumer confidence.

In the medium term we think that sterling will be the main factor. If the weakness of sterling persists, then we will see rising import prices and rising inflation. It's true that the immediate reaction has been for there to be talk of cutting rates further, though that has not happened. But in the medium term, the normal reaction to weak sterling and rising inflation would be to raise interest rates and that would have a knock-on effect on the housing market.

It looks as if an exit will not actually happen before 2019. Therefore any changes in trade terms are still some way off.

Short term

In the short term we need to look at the impact on consumers of the state of the economy as it is at the moment. And that is still relatively benign - real incomes are rising, unemployment is at a record low, the housing market is still relatively healthy and interest rates are still low.

Retail sales growth has been relatively weak, but much of that can be attributed to the unseasonal weather. It is noticeable that when the weather did improve, in May, retail sales growth was stronger. June was predictably poor - the weather was awful and consumers were distracted by the referendum and the Euro 2016 football.

The only company to publish weekly figures is John Lewis and sales growth did, in fact, dip in the referendum week with higher growth the following week.

Figure 1: John Lewis sales growth, June, July 2016
[graphic: image 1]
Source: John Lewis Partnership/Mintel

Problems on the downside

There are two negative factors.

First, much of the recent growth has been financed by credit, meaning that retailers could be vulnerable if the uncertainty surrounding the EU vote leads to a reluctance among consumers to take on new borrowing.

Second, from the point of view of retailers, people seem to want to spend on leisure.

Christmas 2016

Even factoring those two negatives, the prospects for Christmas 2016 are still quite good. Any adverse impact from rising inflation because of the fall in sterling will not really be felt until 2017 because most major retailers will have covered their currency needs forward. We also think that Black Friday will have less impact this year as the damage it does to Christmas trading is now better understood. That should benefit December trading and help underpin margins, albeit at the expense of November's trading.

We also think that people spend on the basis of how they see their own financial situation at the time and that is likely still to be relatively good. Mintel's recent data on consumer reactions to the Brexit vote clearly highlights the way in which people are able to separate their own finances from the broader economic picture: while people are concerned about what Brexit means for the economy as a whole, they're much less negative about the implications for their own financial situation.

At this stage, then, we think that growth in December is likely to be between 2.5% and 3%.

Medium term

The further out we look, the greater the uncertainty.

If Sterling remains weak, then rising inflation will hit demand volumes and could well close the gap between wages growth and inflation.

Consumers' reluctance to make major financial commitments at times of economic uncertainty could also affect the housing market. That could hit consumer confidence and at the very least would slow down housing turnover and that would hit all the housing-related sectors - furniture, electrical appliances and homewares.


In the short term, for the rest of 2016, uncertainty will be the dominant factor. Consumer sentiment and consumer confidence may suffer. There’s no doubt that consumers and markets both dislike uncertainty.

Beyond that, it comes down to the economic impact for the rest of Europe from the UK exit. Its initial impact has already been seen in the weakness of Sterling and, to a lesser extent, the Euro.

But we tend to forget in these discussions that the UK has not left the EU, and that it has not even started the formal process of doing so. Theresa May has signalled that she doesn't plan to start official negotiations until 2017, meaning that an exit would not actually happen before 2019. Any change in trade terms remain some way off.

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