Britons confidant despite slowdown, but for how long?

John Speck

LONDON: The closely-watched Consumer Confidence Barometer, compiled by

research group GFK Ltd. on behalf of the European Commission, showed overall

confidence falling just two points to plus one. The fall followed a modest

one-point rise in the index in March.

Consumer confidence has become a crucial indicator in the UK economy, since

the pace of economic growth this year may well hinge on domestic spending, as

export demand is frail. The GFK report provides a snapshot of confidence between

April 3 and 12, when the foot-and-mouth livestock crisis was dominating news

headlines, conjuring up images of a country in permanent crisis.

While consumers are relatively optimistic, a second report published on

Monday served warning that job losses in Britain later this year could hit

sentiment, prompting consumers to snap their wallets shut. "There could be

a hangover ahead, as news of high-profile job losses sinks in later this year.

Job losses can sometimes have a disproportionate effect on sentiment,"

said, a business think-tank, Consumer Futures director, Richard Holt.

After a long period of unbroken economic growth dating back to the early

1990s, the average Briton still feels pretty confident as unemployment is just

3.3 per cent, real incomes are rising, and the economy is still growing, albeit

slowly.

Periodic job cuts loom in city of London



But the manufacturing sector is still losing jobs at an alarming rate and there
is a risk of spillover losses into the much larger service sector. "Job cut

announcements have so far focused on electronics, but there is also anxiety that

the City of London (financial district) may be poised for one of its periodic

job culls," Holt said.

US mobile phone giant Motorola Inc said last week it was closing its plant

just outside Edinburgh, with the loss of more than 3,000 jobs, while Compaq

Computer Corp announced at the beginning of April it was shedding 700 jobs at a

computer assembly site near Glasgow.

There is some evidence of a gradual weakening in confidence, particularly

from the recent reports by polling group MORI, which put overall economic

confidence at a lowly minus 22 per cent in its last survey. The overall consumer

confidence figure is composed of five different measures of confidence, ranging

from personal finances to specific questions about the general economic

situation.

Most of these individual measures showed deterioration, with expectations for

the outlook for the general economic situation falling to minus 14 points in

April from minus 8 last month. The reading is now the lowest seen for this

measure since September 2000, when it was minus 19. With a general election

widely expected for early June, the ruling Labour party will want the election

held and won well before consumer sentiment starts to weaken further.

(C) Reuters Limited 2001.