Consumer sentiment slips after poll, Brexit

Election uncertainty and the UK’s Brexit vote appear to have weighed on Australian consumers.

The extended election uncertainty and Britain’s vote to exit the European Union appear to have weighed on Australian consumers, with sentiment moving further away from a recent two-year high.

The closely-watched Westpac-Melbourne Institute Index of Consumer Sentiment slid 2.9 per cent in July — to 99.1, down from 102.1 in June.

The figure is now off 4 per cent from May’s two-year high, which came after the Reserve Bank surprisingly cut interest rates.

It is the lowest mark seen since April’s 95.1 reading.

Westpac chief economist Bill Evans said the dip in confidence was anticipated given the political unease across Australia and Europe, with falls perhaps on the lighter side of what could have been expected.

“With the major events of ‘Brexit’ and prolonged election uncertainty it is not surprising to see a fall in the index,” he said.

“In fact, given these developments, this fall appears to be surprisingly modest.”

Mr Evans said that if the survey was conducted this week, rather than last, we could have seen a “more positive” result given the avoidance of a hung parliament.

The current conditions index eased 3.1 per cent to 103.2, while the expectations index weakened 2.9 per cent to 96.4.

The broader index is up 7.4 per cent year-on-year, but Mr Evans cautioned the impact on spending may be muted as the component indicating improvement in family finances has scarcely improved in comparison to a broad jump in the “economic outlook” component.

“Respondents may be buoyed by reports of overall improving economic conditions but they are not feeling the same improvement in their own financial position, pointing to a less encouraging basis for boosting consumer spending than may be implied by the overall index,” he said.

Westpac is expecting a bounce above 100 for the sentiment index next month after political worries have subsided. A possible August rate cut, which the bank is currently tipping as its base case, would also aid the confidence reading.

The Australian dollar briefly slid below US76c on the news, but has since recovered to US76.1c at 11.05am (AEST). It had been trending lower this morning after reaching a two-month high of US76.54c overnight.