British consumers are spending, even though an economist might say they shouldn't be. Surprisingly strong retail sales data for July seems to contradict other figures since UK voters opted to leave the European Union. Business activity in the UK's vital services sector, for example, has fallen at its sharpest rate since 2009.
If consumers are rational, they might expect their future income to go down as Britain enters a recession, and rein in spending. But, that doesn't appear to be happening, retail sales by volume for July were up 5.9 per cent year-on-year, according to the Office for National Statistics (ONS). The main contribution came from theoretically less essential non-food products.
Given 52 per cent of Britons decided to ignore dire warnings of economic collapse should the UK quit the EU, consumers may just be more optimistic, despite a rate cut and increase in quantitative easing by the Bank of England on August 4. Unemployment is 4.9 per cent and wages are rising faster than inflation.
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And in other ways consumers look slightly more cautious. Judging by UK consumers' credit card activity analysed by VISA and Markit, year-on-year consumer spending growth had already started to slow from two per cent-plus between 2014 and the first quarter of 2016 to 1.6 per cent in July. The GfK gauge of consumer confidence suffered its biggest month-by-month drop since 1990, it emerged on July 29.
The point is that even if Britons do expect their incomes to be hit by a post-Brexit recession, spending ahead of a rise in prices is arguably rational. What's less rational is to assume that Brexit won't eventually give the British economy a headache.
