Mixed outlook in prospect

Last week’s Q4 GDP data and Nationwide’s December consumer confidence data present a depressing, although expected start to 2012. As we expected, the GDP data showed a quarterly 0.2% fall on first estimates and may well fall lower as greater actual data becomes available. For the full year, growth was 0.9%, less than half the 2.1% growth in 2010.

One of the concerning changes outlined in the GDP report is the decline in North Sea oil production and its long term impact on the UK economy. The boost that the economy had from the rise in oil production from the early 1980s is coming to an end. The volume of crude oil exports is down by 20% since 2009 and has halved since 2001. The volume of oil imports has increased by nearly 40% since 2001 and is up 11% in the past year. This trend is set to continue.

Consumers and businesses will have to adjust to a period of high fuel prices that will keep inflation relatively high. While mortgage costs have been kept low in recent years, commuting costs and rents have surged ahead with earnings failing to keep pace.

A double dip recession is highly probable in light of the new low recorded in December’s NCCI. The headline index slipped to 36, down 4 points on the month and 17 points lower than a year ago. A 6-point fall in the Expectations Index to a new low of 48 is the main contributor to the decline. Both income expectations and the employment situation continue to be very weak. Despite the downbeat views on income and jobs spending confidence slipped only a little and is at the same level as in January 2011.

The January GfK consumer confidence measure is a ray of light following the GDP data and last months’ sentiment indicators. For the first time since last June confidence rose to under -30 and recorded the best December-January rise since 2004-5. The headline CCB improved by 4 points to -29 on the back of large gains in the general economic situation and spending climate measures.

Last year the January rise in VAT resulted in a 22 point drop in the spending climate measure; this year’s 8-point gain is not reflected in spending intentions rather as in many years in the 1990s and early 2000s is likely to reflect New Year sales.

The outlook for the coming months is mixed, with uncertainty and unexpected events as always likely to blow the economy further off course, but with much to look forward to as the Olympics closes in.

For further details of the January UK Consumer Confidence results visit the Member’s area (free to register)

The UK Consumer Monitor is published on Wednesday February 1^st. For details contact John Gilbert (j.gilbert@jgfr.co.uk) or ring 07740 027968