If there’s one thing that the forecasters got right, it’s that this recovery was never going to be driven by consumption.
Last week’s retail sales figures provide an example. Although stronger than expected in September, the 3m/3m figure showed total sales fell by 0.2% and core sales fell by 0.1%.
There is an upside to this, as the Governor of the Bank of England pointed out in answer to questions from the Treasury Select Committee on Tuesday: the UK savings ratio has now risen to 7.4%. This means indebtedness is falling. But, this deleveraging on the part of consumers goes well beyond what many forecasters thought would be the case and this has implications for growth and subsequently the government’s ability to meet its fiscal targets.
Given the downbeat economic news from the Eurozone in the last month, today’s return of the consumer confidence figures to recessionary levels is not surprising, but it suggests that sluggish household spending, and the subsequent downward pressure on growth, is set to continue.
GfK NOP Consumer Confidence
Consumer Confidence Index falls to -32
Source: GfK NOP, 2011