BRITAIN’s consumers are losing faith in the economy, according to a leading survey that yesterday showed consumer confidence dropping to its lowest level for eight months.
The monthly GfK Martin Hamblin survey, conducted for the European Commission, said its overall indicator of UK consumer confidence had dropped to minus 5 in August, from minus 3 in July.
The most pessimistic were the over-65s. The survey showed that their level of confidence fell to minus 9, from minus 4, on the Commission’s measure. Those in the South were the gloomiest, by area, and those on the lowest income the gloomiest by wage.
The uncertainty came despite revised GDP figures for April-June that showed growth at a buoyant 0.9 per cent, unchanged from the original estimate in July and giving an annual growth rate of 3.7 per cent.
Participants in the survey were more pessimistic than the previous month when asked how they felt about the economy next year and whether it was the right time to make major purchases.
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Perceptions of the general economic situation fell to minus 24, from minus 18, while expectations for economic growth in the next 12 months fell to minus 17, from minus 14. However, people’s feelings of whether their own personal finances had improved in the past year rose to plus 1, from minus 2.
Economists said that rises in interest rates were making consumers more wary of spending.
Monique Hellel, GfK finance director, said: “We’ve seen media reports that the five rate rises since November are beginning to bite and the results of this month’s consumer confidence survey certainly add fuel to this theory.”
Richard Iley, of BNP Paribas, noted that consumer optimism remained high at plus 8. He said: “If the housing market continues to slow as we expect, it is surely only a matter of time before this balance begins to slip back to more normal levels, which would then send a clear signal that consumer spending is set to slow in earnest.”
Signs that consumers feel the economy may be cooling came as the Government published second-quarter growth data. Growth in the quarter was evenly balanced, with manufacturing and services both growing by 0.9 per cent.
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Consumer spending rose by 1.1 per cent, the biggest gain since 2001, investment grew by 1.4 per cent and the deficit in net exports remained unchanged at £11.9 billion.
The strongest growth came from areas such as hotels, business services and government spending. Services output was up 4.3 per cent from the second quarter of 2003, the highest rate since mid-2000.
Michael Saunders, economist for Citigroup, said: “Given the gloomy tone of much recent commentary, it is worth noting that the economy actually is growing very strongly.”
There was no sign of consumer spending easing sufficiently to reduce overall growth to the level the Bank of England sees as necessary to keep inflation on target over time, Mr Saunders said.
STATE SPENDING ACCELERATES
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Government spending is rising faster than at any time since the mid-1970s, according to output figures released yesterday.
Annual growth of government spending was 6 per cent in the second quarter, the highest figure since the first quarter of 1975. The year-on-year growth was the third highest since records began in the 1950s. State spending grew by 1 per cent in the second quarter.
The Conservatives accused the Government of recklessness. Oliver Letwin, Shadow Chancellor, said: “Gordon Brown has embarked on a reckless pre-election spending spree with little or no regard for the consequences. The inevitable result will be yet more tax increases on top of the 66 stealth taxes he has already introduced.”
A Treasury spokesman said: “We set out plans for investment in public services to deliver real improvements in public services whilst staying in strict fiscal rules. All the spending plans are fully affordable.”