Biggest improvement in GfK consumer confidence index over four-month period since 1982
Britain’s consumers have become more optimistic than at any time since October 2009, in the latest evidence that the feelgood factor has started to return to the recession-scarred economy.
The monthly GfK consumer confidence barometer for August, produced for the European Commission, showed that while households are no more positive about their own finances, their expectations about the prospects for the economy as a whole have improved. The index, which now stands at -30, has seen the biggest improvement over a four-month period than at any time since 1982.
Nick Moon, GfK’s managing director of social research, said the upturn in consumers’ mood was hard to reconcile with continued evidence that paltry pay rises are being more than swallowed up by high inflation.
“As more and more official figures show that we are all worse off, with UK living standards at their lowest for a decade, the public’s economic confidence continues to grow strongly, a conundrum of Alice in Wonderland proportions,” he said.
His comments echoed a warning from the economist Ann Pettifor this month that consumers have become too reliant on borrowing to maintain their lifestyles, in an “Alice in Wongaland” recovery.
Moon said recent more positive news about the economy – including modest falls in employment, signs of an improvement in the housing market and stronger-than-expected GDP growth of 0.7% in the second quarter – had probably boosted consumers’ mood.
The chancellor, George Osborne, has repeatedly insisted that the UK is “out of intensive care” and the coalition hopes the improvement in confidence will help to support a sustained recovery in the second half of this year.
The British Chambers of Commerce has become the latest body to upgrade its forecasts for GDP in the UK, for this year and next. In predictions released on Friday it now expects growth of 1.3% in 2013, up from 0.9%, and 2.2% in 2014, up from 1.9%.
John Longworth, BCC director-general, said the government should not use the improving picture as an excuse to neglect the economy: “The recovery is not yet secure. We have had false dawns in recent years and although this upturn appears to be on stronger ground, we must be aware that complacency could lead to setbacks. Many external factors, such as the eurozone, the Middle East, and the Chinese economy, could halt our progress.”
The BCC’s economists said part of the improvement in its projections resulted from the strong performance of exports, which it said had been reflected in recent surveys of its members. Analysis from the Organisation of Economic Co-operation and Development on Thursday showed that the UK is the only country among members of the G20 which saw both exports and imports increase in the second quarter of the year.
The BCC expects the UK’s stronger growth path to be reflected in a slow and steady improvement in the labour market over the next two years. It believes unemployment will fall to 7.5% in the third quarter of 2014, and breach the Bank of England’s 7% target late in 2015, nine months earlier than Threadneedle Street is forecasting.
Mark Carney, the Bank’s governor, has pledged that interest rates will remain on hold at their record low of 0.5% at least until unemployment falls below 7% of the workforce, and he reiterated in his first major speech on Wednesday that he expects that to take another three years. Financial markets fear he may be forced to push up borrowing costs earlier than he expects.
Separate evidence of a gradual improvement in the jobs market came on Thursday as recruitment company Hays reported its first UK and Ireland profit for five years. Hays, which places workers in areas such as finance, construction and IT, said that cost cuts and a second-half rebound in fees helped it swing to a £5.6m full-year operating profit in its home market, against a £6.5m loss in the same period last year.
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