A few days after the news came that Britain’s economy had contracted by 0.5% in the final quarter of 2010 came the figures from GfK’s monthly survey of consumer confidence, showing an unusually large fall. The two were obviously connected, weren’t they?
Not really. GfK’s fieldwork lasts most of the month; the great majority of its fieldwork was conducted before the GDP figures were published. YouGov’s weekly feelgood question for the Sunday Times allows us to look at the course of consumer confidence with greater precision. Like GfK we detected a sharp drop between December and January, from minus 47 to minus 55. (We ask: ‘How do you think the financial situation of your household will change over the next 12 months?’ We derive the index by subtracting the percentage who think things will get worse from those who think things will get better.)
However when we look at the week-by-week figures, we find that much of the deterioration took place in December – from, minus 43 at the start of the month to minus 51 a week before Christmas. In the new year we saw a plateau, with the index standing at minus 55 or minus 56 throughout January. Our latest figure, for last week, shows a tiny recovery, to minus 52. In the coming weeks we shall be able to tell whether this is the start of a real recovery or simply a sampling fluctuation. In either event, it is implausible that the publication of the GDP figures had any material influence on consumer confidence.
The likelier effects have been those of last month’s VAT rise and the recent rise in petrol prices (a combination of VAT rise, duty rise and increase in the world price of oil). People bought Christmas presents and went to the post-Christmas sales knowing that VAT was about to rise – hence December’s anticipatory deterioration in the feelgood factor.
This analysis contains good and bad news for the Government. The good news is that the worsening of the feelgood factors has had only a slight impact on support for the Conservatives. Their popularity has been declining very slowly since the coalition’s honeymoon days last spring, but they remain roughly as popular as they were on election day last May (though their coalition partners, the Liberal Democrats, have suffered badly).
The bad news is that, just as the latest weak figures for GDP had little effect on the feelgood factor, so any bounce back is unlikely when the first quarter figures for 2011 are announced, just a few days before this May’s elections for Scotland’s Parliament, Wales’s Assembly and England’s local councils. The feelgood factor is likely to recover significantly only when people have reason to feel less worried about their own financial position – when they feel more secure about their income, less nervous about inflation, and more confident that they will be able to make ends meet in the months ahead.
The real question, therefore, is whether that will happen quickly, slowly or not at all over the course of the next year or two. The last time the feelgood factor slumped badly was in 2007/2008, as the recession hit Britain and the Northern Rock saga made millions of people nervous about their savings. In the three months before Northern Rock hit the headlines – three months that coincided with Gordon Brown’s honeymoon as Prime Minister, the feelgood factor averaged minus 14. This was, historically, a good score: long experience tells us that the index is very rarely positive.
Over the following nine months, the index crashed, hitting its worst level of minus 67 in June 2008. It then started slowly to recover. The collapse of Lehman Brothers that September actually had little effect; or rather, the measures taken by Britain and other countries in the following weeks helped to reassure British consumers that Britain would head out of recession. In the two months following the Lehman collapse, the feelgood factor recovered from minus 63 to minus 46. It remained at around that level through the winter of 2008/9 before spurting ahead again in the summer of 2009, hitting minus 14 in August – exactly where it had been two years earlier.
As always, the past provides an imperfect guide to the future. If Britain has a double-dip recession, the feelgood factor is likely to stay weak for a long time to come – not because we read the quarterly GDP figures but because the experiences of millions of people will combine to intensify a national mood of insecurity. If mortgage rates increase to combat inflation at the same time, David Cameron will have cause to worry that his party’s rating will finally fall significantly below the 37% it won last May.
However, as long as he is not spooked by election setbacks this May (and possibly next year, too, if Boris Johnson loses his battle to remain Mayor of London), David Cameron can comfort himself with the fact that time is on his side. The next general election is probably four years away. The feelgood factor then could well be far better than it is today. His main concern should be not that Britain’s economy will still then be weak, but that, if there is a double-dip recession, his reputation for competence will be damaged irrevocably – just as John Major’s was in 1992 when Britain crashed out of Europe’s Exchange Rate Mechanism.
But, if there is no double-dip recession, the recent bad feelgood factor figures may come to be seen in years to come as simply part of the economic and political cycle, occurring sufficiently early in the Parliament to do the Government no lasting damage.
Providing, that is, that the coming public spending cuts don’t generate their own political backlash – but that will be another story.
