Investing.com — The outlook for euro zone and UK consumers is “gradually improving” due to rising disposable income and signs that interest rates have peaked, according to Barclays analysts.
Over the past five years, European households have been hit by two major negative shocks – the COVID-19 pandemic and high energy prices – which have forced them to make significant cuts in their real spending on goods and services.
But analysts at Barclays argued in a client note on Wednesday that consumers in these regions are seeing “signs of a turnaround,” with retailers in particular showing increased trading activity. The analysts added that the trend is being supported by improving real wages, lower inflation and a “resilient” labor market.
Barclays analysts expect real private consumption to grow by an average of around 0.3% per quarter in both the euro area and the UK, for a cumulative increase of around 2% from the second quarter of this year to the fourth quarter of 2025.
Meanwhile, analysts expect an expected cycle of interest rate cuts in the euro zone and the UK to “bring relief” to households. The European Central Bank has already announced a 25 basis point interest rate cut, lowering borrowing costs from record highs. Meanwhile, the Bank of England is widely expected to keep interest rates on hold at its next policy meeting on Thursday, but markets are watching closely for clues about possible rate cuts later this year.
Barclays noted that ongoing uncertainty over the outcome of upcoming elections in France and the UK could dampen expected spending growth in the short term, but said candidates across the political spectrum in both countries have “put consumers first”.
