Recent Updates

  • Flash PMIs: Japan, France, Germany, Euro Area (May)
  • Sudan: Trade (Mar)
  • South Africa: Leading Indicators (Mar)
  • Hungary: Employment of Fostered Workers (Mar)
  • Denmark: Central Government Finance (Apr)
  • more updates...

Economy in Brief

UK Plumbs The Downside Of Austerity
by Robert Brusca   January 28, 2011

The GfK measure of UK consumer confidence for January plunged by 8 points marking its largest single-month drop since 1994.

Confidence now sits at the 27the percentile of its 10Yr range and is only at the 18th percentile of the 10Yr orders queue.

Range and percentile data on the 12-past months agree that the household financial situation is weak. The General economic situation is 'not bad' by the standards of the last two years but place it in the 10yr queue and the percentile standing drops from the 71st percentile to the 32nd percentile; it is more than halved.

Inflation expectations are creeping to a higher zone: the 83rd percentile when placed in a 10Yr ordered queue. The ease of savings is now roughly a bottom third of the range event.

Over the next 12-months the factors cited in the above paragraphs get worse. The expectation for the household financial situation drops to the 6th percentile of its range. The general economic situation drops to the 21st percentile of its range. The savings rate stays locked at the 36th percentile but expected inflation ratchets up to the 96th range percentile. The assessment on major purchases posts an 11th percentile reading.

The kicking in of austerity may be good for the UK's long term health but make no mistake about it, in the year ahead people are retrenching and fearing the worst. Upper income earners are taking it a little less hard than are lower income earners but both income classes are giving very low readings to their assessments for 2011.

Since Germany has adopted austerity it makes it hard for this closest competitors not to follow. The UK in fact has some scope for separate policy since it has a separate exchange rate from Germany (and EMU) that could drop to restore competitiveness if the UK did not retrench enough. But it is Germany's competitiveness in the Euro-Area where Germany has been burnishing is advantage. This is being done in a zone where currency depreciation is not an option. Within that zone is where the real challenge lies. German inflation has been lower than inflation in every large Euro-Area country since the zone itself was formed. Not following Germany when it retrenches can have severe long terms risks, as Greece and Spain are finding out. Of course Germany also tolerates relatively high unemployment, making it an unusual yardstick for other economics against which to measure themselves.

GfK Consumer Survey
  Jan-11 Dec-10 Nov-10 Oct-10 % of 2Yr
% of 10Yr
% of 10Yr
Consumer Confidence -29 -21 -21 -19 33.3% 27.0% 18.0%
Household Fin Sit 15 16 16 17 20.0% 9.1% 11.5%
Major Purchases -29 -7 -17 -15 31.3% 23.3% 13.1%
Last 12 Months
Household Fin Sit -18 -16 -13 -13 14.3% 8.3% 16.4%
General Econ Sit -54 -51 -46 -43 71.8% 43.8% 32.8%
CPI 86 81 77 79 73.7% 62.5% 83.6%
Savings -5 -10 -5 -6 69.0% 29.9% 36.1%
Next 12-Months
Household Fin Sit -12 -8 -7 -2 10.0% 18.8% 6.6%
General Econ Sit -30 -23 -22 -20 34.6% 39.3% 21.3%
Unemployment 52 48 50 47 46.7% 52.9% 77.0%
Major Purchases -36 -29 -32 -31 28.6% 16.0% 11.5%
Savings 5 1 3 4 72.7% 30.8% 36.1%
CPI 90 79 80 77 100.0% 98.0% 96.7%
By Income
Lower -37 -31 -31 -28 13.6% 20.5% 14.8%
Upper -19 -9 -9 -13 42.9% 35.1% 23.0%
large image