What does the chart show? 

The chart shows consumer confidence indices for the US, UK, and the Eurozone area since 2005. Consumer confidence is a measure of how confident consumers feel about the state of the economy and the stability of their income. A fall in consumer confidence provides an indication of a future fall in consumer spending, as households face uncertainty and may therefore look to save more of their income, leading to a cooling of economic activity. Consumer confidence was showing signs of rolling over even before Covid-19 struck, but fiscal and monetary stimuli during the pandemic boosted confidence levels, following their sharp drop. UK consumer confidence has fallen below the levels seen during the Covid pandemic and currently sits around levels last seen during the Global Financial Crisis in 2009, while the Eurozone’s sits at levels not seen since the earliest days of the pandemic. US consumers are also growing more pessimistic, with confidence levels having fallen for the third consecutive month following the strong recovery seen post-pandemic.   

Why is this important? 

Record levels of inflation, dramatically tightening monetary policy, and high food and energy prices have now forced many households to reconsider their economic situations, as growing fears of an imminent recession take hold. Demand for labour remains high, and households are sitting on excess savings, suggesting that consumers are not in a completely unfavourable position. With inflation high and consumer confidence low, consumers are already starting to cut back heavily on discretionary spending. Bleak expectations among households may become self-fulfilling, as consumption is drastically cut and economic activity cools. With careful diversification, blending risk assets with defensive and non-correlated assets, we believe it is important to ride out the volatility and stay invested, to participate fully in longer-term opportunities emerging.