Brexit: Impact on Consumers

As the uncertainty surrounding a Brexit from the European Union (EU) rumbles on, the Consumers team examine the potential implications of Brexit from the Households, Income and Expenditure and consumer angles. Insights include the uncertainty surrounding the real estate market in the UK, the impact of Brexit on the highest income-wealth segment and the generational divide that the June 2016 referendum highlighted. Discover more about the impact of the Brexit vote on the UK and global economies in Q3 2016, in our Global Economic Forecasts: Q3 2016 Strategy Briefing.

Households: question mark hangs over UK property market

Aside from the ramifications on household purchasing power brought about by the expected recession in a disorderly Brexit scenario, households will be primarily impacted in the real estate segment. Housing prices are expected to slow their growth in the short to medium term, as property investors look to assess all the risks associated with an EU leaver. Housing completions are expected to drop annually by 12.7% in 2016 to 147,400. This is bad news for home goods and furniture retailers such as Steinhoff International, which is already seeing a decline in the UK market. Demand for property from EU buyers in particular is expected to deflate, although demand from markets such as China and Russia could actually rise, especially in London.

Retail Value Growth of Steinhoff International in Western European Markets: 2010-2015

Source: Euromonitor Competitor Analytics

Note: Retail value in US$ year-on-year exchange rates

Income and Expenditure: top income-wealth segment will be most affected by a disorderly Brexit

According to Euromonitor International’s Income and Wealth Distribution Model, a disorderly Brexit will impact all income and wealth segments but the top division is expected to be the most adversely affected:

• The top income-wealth segment (adults with an annual disposable income over US$42,793 and wealth in access of US$347,002 in constant 2015 prices) is expected to shrink to 4.6 million people in 2020, from 4.9 million in 2015. By 2030, their number will reach 4.8 million;
• Measured in constant 2015 prices, the total income of this segment is expected to be US$619 billion in 2030, down from our baseline forecast of US$703 billion while their total wealth will be US$8.6 trillion, down from the baseline forecast of US$9.8 trillion, largely as a result of a long-term ultra-low interest rate environment and weak currency.

A shrinking top segment with declining income and wealth will impact retailers and consumer-focused businesses that specifically target the UK’s wealthy and high earning individuals. Although this might not necessarily mean the need for companies to offer lower prices, it is important to emphasise the best value for money.

Number of Adults in the Top Income-Wealth Segment in the UK: 2015-2030

Source: Euromonitor International’s Income and Wealth Distribution Model

Note: Data for 2016-2020 are forecast

Lifestyles: Brexit ramifications to emerge over the next 12 months and beyond

With Brexit implementation plans and timelines still in development, UK consumers are hedging their bets, googling how to gain citizenship elsewhere while also continuing to commute to their jobs, plan their holidays, pay their bills, and shop for necessities and nice-to-haves. We surveyed UK consumers in June 2016, just before the Brexit vote, and will re-survey them again in 2017 to assess how behaviours and attitudes have shifted in the medium-term wake of this historic vote:

• Pre-Brexit, 62% of UK consumers planned to maintain their spending on leisure travel and holidays for 2016-2017, with younger consumers most likely to say they would either maintain or increase their travel spending. Post-Brexit, the threat of long passport lines in future may lead UK consumersto further increase their travel to Europe in the short-term;
• 36% of UK consumers said they currently do not spend on medical care, and another 52% said, pre-Brexit, that their spending on such costs would stay the same for 2016-2017. Increased spending on healthcare was one of the carrots dangled by Brexit supporters, and subsequently retracted; what happens with UK investments in the National Health Service is also likely to impactconsumer spending on healthcare, allowing more or less money for discretionary spending;
• Three in ten UK consumers said pre-Brexit that they expect to live or work in another country at some point during their lifetimes, including a full 50% of respondents aged 15-29. As their EU passport privileges are terminated and replaced with requirements for work and extended stay visas, younger UK consumers’ open-mindedness about living abroad is likely to shrink greatly, potentially exacerbating the generational divide that the Brexit vote exposed.

UK Consumers’ Spending Intentions for 2016-2017, Pre-Brexit Vote

Source: Euromonitor International’s Global Consumer Trends 2016 survey

Population: Brexit Highlights Generational Divide

The EU referendum that resulted in a Brexit vote has exposed the stark generational divide between “millennials” and “baby boomers”, as older people were generally seen to be more inclined to vote to leave than younger generations:

• Brexit, particularly the scenario of a disorderly Brexit, which Euromonitor International’s Macro Model has assigned a relatively high probability of 30-40%, will affect the freedom to live, work and study abroad; pan-European collaboration in many sectors; foreign trade and inflows of foreign direct investment. All of these are issues that directly impact various aspects of millennials’ lives;
• However, baby boomers are unlikely to emerge unscathed from the fallouts. Savers approaching retirement and pensioners will feel the consequences of Brexit on their investment returns, interest rates, expat arrangements and future annual increases in state pensions;
• According to Euromonitor International’s Future Demographics Model, the population aged 50-70 (baby boomers) is set to grow by nearly 9.0% in the period through to 2030, in contrast to millennials whose population will decline by around 2.0% over the same period.

Millennials and Baby Boomers in the UK: 2015-2030

Source: Euromonitor International’s Future Demographics Model

Note: Data for 2016-2030 are forecast