United Kingdom: Confidence may unlock household spending – Rabobank

Rabobank’s Stefan Koopman examines the UK’s demand outlook under Prime Minister Burnham’s transition from “securonomics” to “vibonomics.” The analysis suggests that if confidence improves, there could be a temporary increase in consumption, even though high household savings and low confidence currently pose challenges. However, the report emphasizes that sustained growth in the UK hinges on structural reforms addressing productivity, investment, housing, energy, and real wages.

The report notes that a modest improvement in confidence could unlock some of the current savings buffer. Over the next two years, the saving ratio is projected to remain around 9.4%, indicating cautious behavior amid structural uncertainty. This, along with elevated interest rates, is expected to result in an additional £150 billion in savings buildup.

Every one percentage point decrease in the household saving ratio could add roughly 0.5% of GDP in demand, once accounting for import leakages. A sustained reduction of around three percentage points, bringing the ratio back to its pre-pandemic average, could potentially raise GDP by approximately 1.5% over the period leading up to the 2029 election.

Burnham may be able to boost public sentiment, but he cannot single-handedly revive the UK's consumption slump. Addressing the structural constraints hindering both supply and living standards will be crucial, as part of the autumn reform agenda. GBP/USD remains slightly defensive at the week's end, trading near the low 1.3600s after peaking above 1.3670 earlier.

The currency pair's decline follows two successive daily gains and a lackluster advance in the US Dollar, as well as poor UK economic data. EUR/USD is trading with modest losses around 1.1670 after failing to advance past 1.1700 convincingly. The decline is linked to another unsuccessful attempt to surpass 1.1700 and the generally positive sentiment toward the US Dollar amid recent US data and developments in the US bond market.

Gold quickly recovers from Thursday's indecisive price action, breaking above the $4,600 mark and reaching three-month highs. The precious metal's strong performance persists despite a marginal gain in the US Dollar and rising US Treasury yields across the yield curve. The cryptocurrency market remains bullish on Friday, with Bitcoin surpassing $77,000, while altcoins like Ethereum and Ripple are also trending upwards.