In almost any country, the major user of domestic output (goods and services) is clearly the public. In the UK, for instance, it is believed that nearly two-thirds of all output is consumed domestically. As a consequence, consumer spending is the leading driver of economic growth (or otherwise) in virtually every developed country. However, consumers are reluctant to spend money if they are worried about job security, or find that their disposable income is very low which is why consumer confidence is a key indicator of a nation’s economic fortunes.
In the UK, Q3 growth came in at 0.8% and data from the Office for National Statistics (ONS) indicates that this expansion has largely been led by increased consumer spending. The expansion in the UK economy is the best seen since 2010 and was matched by an increase of 0.8% in consumer spending. However, export performance faltered, dropping by 2.4% in Q3 which contributed to a widening trade deficit of £8.9 billion, up from £5.5 in Q2. The UK enjoyed the best Q3 growth of any of the G& countries, but the UK is still 2.5% below its pre-crisis level.
According to the ONS data, business investment increased by 1.4% in Q3, reversing a decline of 2.7% seen in the second quarter of the year, but it remains 6.3% below its Q3 2012 level, indicating that businesses are still reluctant to invest in the current climate.
According to the Confederation of British Industry, retail sales had been subdued because of mild autumn weather which, they contend, dissuaded people from buying winter clothing – a recent cold snap in the UK may have changed that, but it could be that consumers are making do with garments from last year. However, the CBI reports that retailers are optimistic on the outlook for consumer spending over the up-coming festive period.