Falling house prices and consumer spending combine to deepen gloom
Larry Elliott and David Hencke
The Guardian, Friday May 30 2008
Gordon Brown's hopes of recovering from this month's hat-trick of electoral setbacks received a fresh blow today as falling house prices and rising food and energy bills prompted the biggest slump in consumer confidence since the onset of the last UK recession in autumn 1990.
A report by GfK NOP showed that the government's efforts to bounce back from Labour's third place in the local elections, defeat in the London mayoral election and the loss of the Crewe and Nantwich seat are being hampered by a mood of deep gloom that has engulfed voters in the year since Brown became prime minister.
This morning's survey of public opinion followed a report by the Nationwide building society showing that house prices dropped by 2.5% last month, the biggest one-month drop since the property crash of the early 1990s. Meanwhile, the CBI reported a second month of declining spending on the high street.
Adding to the prime minister's woes, an opinion poll published last night showed that support for Labour has fallen to its lowest level for more half a century. The YouGov survey for the Daily Telegraph shows Labour at 23 points and the Conservatives at 47 - a Tory lead of 24 points.
Rachael Joy at GfK NOP said: "UK consumer confidence continues its decline and we are seeing levels not recorded since 1990. We are a massive 27 points lower than this time last year. Consumers' confidence in the economy over the next year, plus a reluctance to make major purchases, reflect the popular expectation of a recession - both these measures are at the lowest level on record."
Although government figures show that the economy grew by 0.4% in the first three months of 2008, today's news of a five-point drop in consumer confidence to -29 in May continues a trend that began with the onset of the global financial crisis in August last year. Voters have become markedly gloomier about their personal financial situation, but are even more downbeat about the overall state of the economy, one of Labour's political strengths in its first decade in power.
The measure for the general health of the economy dropped by five points to -58 points this month, a drop of 40 points in the last year to a level not seen since February 1993, in the early stages of the UK's post-recession recovery. The survey found that consumers have never been so reluctant to make a major purchase, such as a washing machine or furniture.
City economists said the mood of pessimism among voters pointed to further drops in consumer spending and house prices in the summer, particularly since the Bank of England has expressed doubts about cutting interest rates.
Reporting its seventh successive decline in house prices, Nationwide said the credit crunch was the trigger for the "changing fortunes in the housing market", but added that borrowers should be better able to "weather the storm than in the early 1990s".
Michael Saunders, UK economist with Citigroup, said in the past six months house prices fell at an equivalent annual rate of 11.4% and in the most recent three months they had been falling at an annual rate of 16.1% - both sharper drops than in the recession of a decade and a half ago.
"Consumer confidence already has plunged and surveys suggest retail sales growth is weakening very sharply," said Saunders. "Worse lies ahead as the lagged effects of housing come through, as well as the erosion of real incomes from rising inflation and mounting job losses.
"The UK economy is heading close to recession. Over time, the Bank of England is likely to cut rates more than markets price in. Nevertheless, the surge in inflation and inflation expectations makes early Bank easing very unlikely."
This morning's YouGov poll showed that Brown's personal rating among voters is now the same as John Major's at his lowest point. The poll found that just 17% of people thought he would make the best PM, compared to 39% for David Cameron.
Despite efforts to draw a line under the 10p tax fiasco, support for Labour has fallen three points over the last month, while the Conservatives have risen three points, the survey shows.
According to the Daily Telegraph, this is the lowest level of support for Labour since Gallup first asked people to declare their voting intention in 1943.
If the result was repeated in a general election, Cameron would achieve a bigger landslide victory than Tony Blair in 1997 and Labour would be reduced to a rump, having less than 100 MPs in the House of Commons.
The YouGov survey of 2,240 people also showed that public confidence in Labour's ability to run the economy has dropped heavily.
Just 22% believe Labour is likely to manage the economy well, down 27% since 2005, while 39% believe that the Conservatives would do a good job, an increase of 12%.
Larry Elliott and David Hencke
The Guardian, Friday May 30 2008
Gordon Brown's hopes of recovering from this month's hat-trick of electoral setbacks received a fresh blow today as falling house prices and rising food and energy bills prompted the biggest slump in consumer confidence since the onset of the last UK recession in autumn 1990.
A report by GfK NOP showed that the government's efforts to bounce back from Labour's third place in the local elections, defeat in the London mayoral election and the loss of the Crewe and Nantwich seat are being hampered by a mood of deep gloom that has engulfed voters in the year since Brown became prime minister.
This morning's survey of public opinion followed a report by the Nationwide building society showing that house prices dropped by 2.5% last month, the biggest one-month drop since the property crash of the early 1990s. Meanwhile, the CBI reported a second month of declining spending on the high street.
Adding to the prime minister's woes, an opinion poll published last night showed that support for Labour has fallen to its lowest level for more half a century. The YouGov survey for the Daily Telegraph shows Labour at 23 points and the Conservatives at 47 - a Tory lead of 24 points.
Rachael Joy at GfK NOP said: "UK consumer confidence continues its decline and we are seeing levels not recorded since 1990. We are a massive 27 points lower than this time last year. Consumers' confidence in the economy over the next year, plus a reluctance to make major purchases, reflect the popular expectation of a recession - both these measures are at the lowest level on record."
Although government figures show that the economy grew by 0.4% in the first three months of 2008, today's news of a five-point drop in consumer confidence to -29 in May continues a trend that began with the onset of the global financial crisis in August last year. Voters have become markedly gloomier about their personal financial situation, but are even more downbeat about the overall state of the economy, one of Labour's political strengths in its first decade in power.
The measure for the general health of the economy dropped by five points to -58 points this month, a drop of 40 points in the last year to a level not seen since February 1993, in the early stages of the UK's post-recession recovery. The survey found that consumers have never been so reluctant to make a major purchase, such as a washing machine or furniture.
City economists said the mood of pessimism among voters pointed to further drops in consumer spending and house prices in the summer, particularly since the Bank of England has expressed doubts about cutting interest rates.
Reporting its seventh successive decline in house prices, Nationwide said the credit crunch was the trigger for the "changing fortunes in the housing market", but added that borrowers should be better able to "weather the storm than in the early 1990s".
Michael Saunders, UK economist with Citigroup, said in the past six months house prices fell at an equivalent annual rate of 11.4% and in the most recent three months they had been falling at an annual rate of 16.1% - both sharper drops than in the recession of a decade and a half ago.
"Consumer confidence already has plunged and surveys suggest retail sales growth is weakening very sharply," said Saunders. "Worse lies ahead as the lagged effects of housing come through, as well as the erosion of real incomes from rising inflation and mounting job losses.
"The UK economy is heading close to recession. Over time, the Bank of England is likely to cut rates more than markets price in. Nevertheless, the surge in inflation and inflation expectations makes early Bank easing very unlikely."
This morning's YouGov poll showed that Brown's personal rating among voters is now the same as John Major's at his lowest point. The poll found that just 17% of people thought he would make the best PM, compared to 39% for David Cameron.
Despite efforts to draw a line under the 10p tax fiasco, support for Labour has fallen three points over the last month, while the Conservatives have risen three points, the survey shows.
According to the Daily Telegraph, this is the lowest level of support for Labour since Gallup first asked people to declare their voting intention in 1943.
If the result was repeated in a general election, Cameron would achieve a bigger landslide victory than Tony Blair in 1997 and Labour would be reduced to a rump, having less than 100 MPs in the House of Commons.
The YouGov survey of 2,240 people also showed that public confidence in Labour's ability to run the economy has dropped heavily.
Just 22% believe Labour is likely to manage the economy well, down 27% since 2005, while 39% believe that the Conservatives would do a good job, an increase of 12%.
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