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Consumer confidence increases as recession fears fade

Monthly GfK index jumps five points in May, but at -22 it shows consumers face long climb out of 'pit of economic pessimism'.

Consumers are becoming less gloomy about the economy and the state of their own finances amid signs that the outlook for growth has started to improve.

The monthly survey from the polling group GfK recorded a five-point jump in its confidence barometer in May, continuing its upward trend since the turn of the year.

Consumer incomes remain under pressure at a time when prices are rising more rapidly than earnings, but the past month saw fears of a triple-dip recession dispelled by the release of Office for National Statistics (ONS) figures showing the economy had grown by 0.3% in the first quarter of 2013.

The British Chambers of Commerce (BCC) said in a separate survey that it was raising its 2013 growth forecast from 0.6% to 0.9% as a result of the better-than-expected start to the year. It nevertheless urged George Osborne to use next month's spending review for 2015-16 to announce additional funds for infrastructure projects.

John Longworth, the BCC's director general, said the better prospects for growth were encouraging. The employers' group said it was now pencilling in expansion of 1.9% in 2014 and 2.4% in 2015, in both cases 0.2 points higher than it had predicted three months ago. Government borrowing this year is expected to be £3bn lower at £117bn but unemployment 50,000 higher.

"We have constantly said that earlier fears of a triple-dip recession were misguided and risked damaging confidence unnecessarily", Longworth said. "Upward revisions of official figures may even show there was no double-dip recession. There is no doubt that the improved outlook is a tribute to the unswerving determination shown by our members in previous quarters, when there was excessive pessimism over the economy.

"Unfortunately, this does not change the fact that economic growth is still too weak, and the pace of recovery will remain unduly slow for a while yet. We are still a far cry from getting the economy fully back on track. The UK is, and will be for some time, performing below its potential and we can do so much better. But the government must step up its efforts to create the right conditions for an environment that supports enterprise, as this will help more businesses to create jobs, invest, export and ultimately, grow."

Nick Moon, managing director of social research at GfK, said while consumers were "hardly confident", there was real evidence that they were "moving out of the feeling of despondency that the country has been mired in for the last year or so". He added that the current level of consumer confidence was -22, seven points higher than in any month of 2012, with the exception of November which at the same figure of -22 was considered a blip.

"But before we get too carried away, we should note that even after this rise, the index is still lower than it was for the whole of 2010, and massively worse than it was for an entire decade from 1997 to 2007. We may be climbing out of the pit of economic pessimism, but there's a long way to go until the public becomes neutral, let alone positive."

The index shows the balance of people surveyed who are less confident compared with those who are more confident about the trend in the economy and their own finances.

Source : Larry Elliott - The Guardian

31 May 2013
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