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Economy in Brief

Consumer Confidence Falls in UK with Rising Concern over Economic Outlook
by Carol Stone August 31, 2006

Consumers in the UK apparently reacted to the Bank of England's early August rate increase as they reported a significant increase in their concern over the the UK economic outlook in the August consumer confidence survey conducted by GfK NOP (formerly GfK Martin Hamblin). The overall consumer confidence barometer fell to -8 for August from -4 in both June and July and also -4 in August 2005. The decline hit in varying degrees both men and women, all age ranges, income brackets and regions of the UK.

However, as seen in the table below, respondents to the survey do not believe they have suffered any erosion in their personal financial condition. In fact, they feel that their current condition has improved slightly from a month ago and their assessment of the last 12 months and the coming 12 months are unchanged from July readings, at +11 and 0, respectively. Instead the deterioration has come in people's views of the macroeconomic situation. The overall economic outlook for the next 12 months is now viewed negatively by a net of 23% of the respondents, sharply worse than the 14% in July and 13% a year ago. Their view of the past year fell by about the same amount, from -28% to -35%.

Obviously, it was not just a single policy move by the Bank of England that sparked the drop in confidence. The largest number of people in six years (65%) report in this survey that they have experienced higher inflation over the past 12 months and the most in three-and-a-half years (73%) report that they anticipate inflation will keep rising over the next 12 months. Expectations for rising unemployment are much lower, 36%, but they are also on an uptrend, having bottomed out early in 2005 at just 15%.

Consequently, in the quarterly survey questions for Q3, intentions to buy cars, houses or spend a significant amount of money on home improvements sank to recent lows or reversed improving trends.

The survey results were worse than forecasters expectations, which had called for an overall reading of -5. However, press reports indicate that market reactions were relatively muted in view of improving trends in this week's releases of strengthening trends in the distributive trades survey and rising home prices, as well as the concentration in this survey on the macroeconomic situation, not on personal finances.

All of these data, including series on the distributive trades survey and Nationwide home prices, are contained in Haver's UK database and the surveys are also both in our international surveys database, INTSRVYS.

% Balance, Seas Adj Aug 2006 July 2006 June 2006 Aug 2005 2005 2004 2003
Consumer Confidence Barometer -8 -4 -4 -4 -3 -3 -4
Financial Situation of Households: Current 25 23 23 21 21 21 21
General Economic Situation:  Next 12 Mos. -23 -14 -18 -13 -12 -13 -18
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