Britain’s consumers have largely been deaf to the warnings of impending economic disaster that have rained down thick and fast ever since the EU referendum in June 2016. The public’s appetite to spend has remained strong but one thing it won’t buy is doom and gloom.
It would be surprising, though, if consumers were completely impervious to what is happening over Brexit. Surveys have suggested that consumer confidence is getting weaker even though spending in the shops and online has held up well.
This is not an incongruous as it might seem. Consumers are normally asked how they feel about their own finances and also how they view the economy generally. The fact that employment is high and real wages are rising can leave people feeling good about their own prospects, even though watching the news and reading the papers can leave them wondering whether the country as a whole is going to the dogs.
Growth will weaken markedly if consumer concerns about the state of the nation start to outweigh the feeling that they are personally better off. If that were to happen, consumers would be deferring spending just as businesses are deferring investment.
There are warning signs from the monthly European commission survey of UK consumer confidence that this is a distinct possibility. Household confidence in the health of the economy fell to its lowest in seven years, but more worrying was the drop in confidence in their own financial situation because this tends to have a strong correlation with high street spending.
The EC survey does not contain a regional breakdown but an insight into how consumer confidence is holding up in two different parts of England is provided by Algorithmic Economics, a company that has been charting the feelgood factor in Greater London and Rochdale since the start of 2018, using machine learning algorithms to monitor tweets.
The findings suggest that attitudes towards Brexit might be affecting confidence levels. Despite being a lot wealthier, remain-voting London has consistently had a lower feelgood factor, with a steady fall each month since Easter. In leave-voting Rochdale, the feelgood factor has held up much better.
Bad news for Amigo, good news for vulnerable people
No tears should be shed for shareholders in the loans group Amigo who saw the value of their investment halved after the company warned them to expect tough times ahead.
Amigo’s activities have rightly – if rather belatedly – attracted the attention of the Financial Conduct Authority, the City watchdog, over a business model that involves guarantor loans. These allow those with poor credit records to borrow provided they can get a friend or family member to pledge to pay up if the borrower cannot.
What bothers the FCA is that many of the guarantors fail to grasp what they are letting themselves in for, with the result that too many loans were being called in. That’s not entirely surprising, given that the friends and family of high credit risk individuals don’t tend to be rolling in it themselves. The FCA was also unhappy about Amigo’s annual interest rates of just under 50%, pointing out that instead of smoothing out temporary cash flow issues the loans were trapping borrowers in a cycle of debt.
Amigo could sense the way the wind was blowing. Fearing a regulatory crackdown, it has now decided to adopt a more conservative strategy by concentrating on securing new customers rather than repeat business. This will be bad for Amigo’s profits – and hence its share price – but is good news for the weak and vulnerable.
All the problems with guarantor loans could have been predicted long ago and it is surprising the FCA did not take a tougher line earlier rather than face the charge that it is behind the curve. Expect a somewhat speedier response for claims management companies looking to find new cases of mis-sold products now that the deadline for applying for PPI compensation has passed.