Top stuff here from Bloomberg’s Rob Hutton (@robdothutton).
Since the coalition government took over, and particularly since George Osborne laid out exactly which cuts he would make, confidence of UK consumers in the economy has nosedived.
This is not especially surprising: being told “The economy is a mess and we have to drastically cut back to avoid chaos” is hardly the most reassuring message for consumers to receive.
And consumer confidence is important. Even if people have more money in their pockets, growth can stagnate if they are so worried about another downturn that they hoard their cash rather than spending it. Confidence is often a good predictor of what will happen in the broader economy.
But wait – there is good news! Since the royal wedding, confidence has bounced back, recovering almost to where it was before the spending review. This is not necessarily a coincidence – big, public, feel-good events can trigger a blip in confidence. But as you can see from the late down-tick in the red line above, it is likely only to be temporary.
More seriously for Osborne and the coalition, however, they cannot simply blame macroeconomics for the UK slump. At the same time as consumers here have begun to fret again, those in the Eurozone have steadily felt more and more secure.
It might be argued that the UK’s deficit was far worse than across the Eurozone as a whole, so action to cure it, while inevitably having hurting confidence, was essential, and more so than in the Eurozone, even though that includes Greece.
But it cannot be denied that the government’s words and actions are making consumers far more nervous. That in itself could lead to stagnation. Ministers need to focus on growth and start sending out positive messages, soon.
Jim Pickard
Kiran Stacey