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UK consumer confidence is ebbing, with serious repercussions for listed retailers and companies with exposure to the housing market.

The latest GfK survey on UK consumer confidence, released this week, showed UK consumer confidence dropping again to -9 in June, which has serious implications for housing shares and the retail sector, which has been struggling since Christmas.

UK consumer confidence – major purchases avoided

In addition, a sub-index which looks at whether UK consumers feel able to make a major purchase, has also retreated. This means that consumers may be starting to reconsider major financial commitments, like a new house. This could have serious implications for UK property prices and UK house builders. Results over the past decade show that a sustained drop in consumer confidence will start to impact on mortgage approvals.

The Bank of England is due to report on UK mortgage approvals today: last month they came in higher than many economists were expecting, but over the longer term we are still seeing a year-on-year decline of 2.4%, the eighth consecutive decline to date.

“The softness is in turn starting to show up in house prices,” says Russ Mould, investment director with AJ Bell. “This has potential implications for the share prices of the FTSE 100 and FTSE 250 house builders, which are still riding high, helped by strong demand and a strong pricing environment, both of which are in turn receiving help from a series of government initiatives, including stamp duty land tax relief for first time buyers, the Lifetime ISA and the Help to Buy scheme.”

Persimmon shares in focus next week

AJ Bell has identified a correlation between the Persimmon share price and the GfK Major Purchase Index, particularly since Q3 of 2012. It has become more pronounced in 2016-17. With companies like Crest Nicholson and Berkeley already issuing cautionary statements to the market, it will be interesting to hear what Persimmon has to say next week. Holders of Persimmon shares will be looking for reassurance on cost pressures, the forward order book, reservation rates and average selling prices from Persimmon boss Jeff Fairbairn.

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Please note this article does not constitute investment advice. Investors are encouraged to do their own research beforehand or consult a professional advisor.

Stuart Fieldhouse

Stuart Fieldhouse

Stuart Fieldhouse has spent 25 years in journalism and marketing, including as a wealth management editor for the Financial Times group, covering capital markets and international private banking, and as an investment banking correspondent for Euromoney in Hong Kong. He was the founder editor of The Hedge Fund Journal.

Stuart has worked at CMC Markets, supporting the re-launch of its global financial spread betting and CFD trading platforms. He is also the author of two books on trading, published by Financial Times Pearson. Based in The Armchair Trader’s London office, Stuart continues to advise fund managers, private banks, family offices and other financial institutions.

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