UK consumer economy slows, manufacturing perks up in BoE, EU surveys

A worker walks past office skyscrapers in the City of London financial district, London, Britain, January 25, 2018. REUTERS/Toby Melville

By Andy Bruce

LONDON (Reuters) - Britain's consumer economy remains in the doldrums despite solid growth in manufacturing, two surveys showed on Tuesday, providing mixed reading for Bank of England officials as they weigh whether to raise interest rates.

Sales growth across consumer services companies struck a five-year low between late March and late May, according to a BoE survey that also showed a modest upturn in pay deals struck with employees.

Separately, the European Commission reported British consumer confidence fell to a six-month low in June, hurt by pessimism about economic prospects ahead of Brexit.

On the plus side, both surveys pointed to improved growth in manufacturing output, which cooled somewhat at the start of 2018 after a strong showing last year.

The BoE is looking for firm signs that Britain's sharp economic slowdown in early 2018 was temporary before it raises interest rates again.

But its own survey, compiled by its regional representatives, showed only a small improvement in retail spending growth after a particularly weak first quarter.

James Smith, economist at ING, said this was further evidence that the slowdown could not be fully blamed on bad weather -- at odds with the BoE's view that snow was probably a big factor. "Consumers remain cautious," Smith said.

Graphic: UK's consumer economy-


The Commission's consumer confidence index for Britain slipped in June to -7.0 from -3.0 in May, as citizens became more downbeat about the outlook for the economy, their finances and unemployment.

A separate BoE survey of companies' chief financial officers showed they on average expect Britain's departure from the EU Brexit to dent sales by 3 percent, compared with 2 percent a year earlier, though forecasts vary widely across firms.

The BoE's Decision Maker Panel survey of more than 4,000 firms with at least 10 staff showed that just under 40 percent viewed Brexit as one of their top three sources of uncertainty - a figure that has changed little over the past year.

More productive firms were more likely to be worried about Brexit, as were those which traded with other EU countries or had a high share of staff from elsewhere in the bloc, according to preliminary analysis by Paul Mizen, an economics professor at the University of Nottingham who runs the survey.

The data also showed that firms concerned about Brexit were less likely to invest, and that those relying heavily on foreign workers had increased staff numbers by less other firms.

The BoE and EU surveys showed mixed prospects for the labour market. Pay settlements across British companies in early 2018 averaged between 2.5 and 3.5 percent, the BoE said, compared with around 2 to 2.5 percent in its June 2017 survey.

The improvement reflected a tighter labour market and a rise in the minimum wage, the survey showed.

But employment intentions in consumer-facing sectors had weakened, indicating a reduction in headcount, the BoE said.

And the EU survey's index of services employment over the last three months turned negative in June for the first time since late 2012.

(Additional reporting by David Milliken; editing by John Stonestreet)