Consumer confidence takes another hit
The evidence that the household sector of the economy is in a very bad way has been building up up for months. The latest is the GfK NOP Consumer Confidence Index; the January figure showed an 8 point fall to -29. This is the worst result since March 2009, when when we were just coming out of recession.
The index is based on questions about the general economic situation (last 12 months and next 12 months), personal financial situation (last and next 12 months), climate for major purchases and perceptions of good time to save: every item took a turn for the worse this month.
There is an interesting change from the January 2009 figure for the perception of the economy over the next 12 months, which was minus 2 then (i.e. the proportion saying things were likely to change for the worse was 2 percentage points higher than the proportion saying things were likely to change for the better). This January the figure is minus 30.
Blaming the VAT increase (“the first of the government’s austerity measures that has had a widespread impact on consumers”), Nick Moon, the Managing Director of GfK NOP Social Research, Said:
January’s eight point drop represents an astonishing collapse in consumer confidence. In the 35 years since the Index began, confidence has only slumped this much in a single month on six occasions, the last being November to December 1994.
You have to worry about this sort of fall. It isn’t just a bad thing in itself; huge shifts like this in the “animal spirits” of the household sector can’t be quarantined from the business sector. In manufacturing the (on the whole) positive prospects for exports are keeping investment plans healthy, but other industries are going to be more influenced by UK consumers. There are other factors, of course, but it’s madness to expect shifts of this magnitude to have no effect.