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Confident consumers raise hopes of averting double-dip recession 31 August 2010
Elena Moya (about the author)

Britain's consumer confidence rose in August for the first time in six months, bolstering the incipient economic recovery and raising hopes that the country will not fall into a double-dip recession, economists said.

The GfK NOP consumer confidence index increased by four points in August to -18, seven points higher than this time last year and the first overall increase since February. Based on 2,000 interviews with Britons over 16, the index showed consumers feel more positive about the economy and their personal financial situation over the past and next 12 months.

Howard Archer, chief UK and European economist at IHS Global Insight said: "This reduces the chances of a double-dip recession, but it doesn't mean that the economy is going to roar ahead."

The UK economy grew by a surprisingly robust 1.2% in the second quarter, an indication that recovery was under way after the worst recession in sixty years. "We are in recovery, and the improvement is good news, it alleviates some pessimism over prospects going forward," Archer said.

However Steven Jackson of beatmydebt.com is worried that consumers are not yet feeling the full force of government budget cuts. "In my view, the next twelve mopnths or so are going to be extremely difficult for many people. The government cuts will been redundancies and wage reductions which will hit many hard, particularly those with no savings to fall back on" he said.

Government cuts may hinder growth

Confidence in the economy over the next 12 months was the index category that showed the biggest improvement, increasing to -14, from -25 in July.

"Overall consumer confidence has been in constant decline for the last five months and a further fall would have made a double-dip recession seem a very real prospect," said Nick Moon, managing director of GfK NOP Social Research. "The government will undoubtedly read these figures with a great deal of relief."

The coalition is facing criticism from economists who say draconian budget cuts will hinder economic growth. Despite the increase in confidence, the index showed most Britons were still pessimistic about the "climate for major purchases" – a category in which confidence worsened by four points to -20.

Archer said: "Households already face high unemployment, muted earnings growth, elevated debt levels, high fuel prices and tight credit conditions. A muted housing market is also not good news for consumer spending."

Regional unemployment to reach 10%

There was worse news for the economy, however, in another report out today. According to the CEBR, an economic consultancy, unemployment is expected to breach 10% in half of UK regions over the next five years. Weak consumer spending and housing market demand will hit the north east, Yorkshire and the Humber, West Midlands, Wales, Northern Ireland and the north west, the CEBR said.

But London will continue to grow, the consultancy said. The capital will account for 19.8% of UK economic activity by 2015, up from 16.3% in 1995, the report said.

Consumer confidence also rose in Europe, to the highest level in more than two years, helped by stronger exports, the European Commission said on Monday.

Source: The Guardian