Consumer confidence in the UK has been continuing to fall, with higher interests of 4.75% negatively...
Consumer confidence in the UK has been continuing to fall, with higher interests of 4.75% negatively affecting the average spender. However, as unemployment is still low, the likelihood of a recession is low.
According to research by BDO Stoy Hayward, UK economic growth is set to slow down and business confidence has fallen to its lowest level since October 2003.
The BDO Business Trends Report showed that with weakening global demand, the UK Chancellor Gordon Brown will miss his economic growth targets of 3%-3.5% and face increased difficulty in limiting borrowing.
UK business confidence has in part been affected by a downturn in the global economy and the expectation that the Government, post-election, will reduce spending in an attempt to reduce their budget deficit.
Peter Hemington, partner at BDO Stoy Hayward, said: "The economic news following May's election has been unpromising. Retail is edging down and the world economy is softening. The latest poll of polls points to a weakening in the UK economy and it is likely the Chancellor will miss his growth targets."
Similar views are echoed in the Nationwide Consumer Confidence Report which showed while people remain positive about the current economic climate, they are not so bullish about the future.
Stuart Bernau, executive director of Nationwide, said: "There has been a noticeable change of sentiment on the economy this month and people now seem to feel much more uncertain. With house prices cooling, consumers seem to be less optimistic, tightening their belts and looking to reduce their debts rather than spend on the high street. People seem particularly uncertain about the future of the economy, jobs and income and it could be that the next couple of months are critical to the direction of the economy."
Haydn Davies, chief economist at Barclays Global Investors, thinks this is going to have a knock-on effect on companies. He says: "Poor trading results from Marks & Spencer and Boots raise few eyebrows these days, with both companies having seen better times. However, other high street chains such as music retailer HMV, electrical retailer Dixons and DIY chain Kingfisher, have begun to echo the warnings from Boots and Marks & Spencer, suggesting that the downturn is more widespread.
"Consumer spending has been cooling noticeably ever since the Bank of England began to raise interest rates last August, and the value of retailers' non-food sales is now lower than it was a year ago. The last time consumer spending was so weak was in 1991, when the UK last experience a recession."
However, Davies thinks the UK does not look to be on course for its first recession in 14 years. Unless unemployment climbs sharply, a full-blown consumer slump looks unlikely, but retailers will have to get used to leaner times for now.
Trevor Williams, chief economist at Lloyds TSB Financial Markets, says: "House price inflation is weakening and it is true to say that consumers, hit by higher interest rates, higher utility bills and tax increases, are more cautious about borrowing. But the strong employment situation and 4%-plus annual growth in wages means that consumer incomes are still rising and so spending could recover in the second half of the year."
UK consumer confidence is falling due to higher interest rates.
UK economy unlikely to meet growth targets.
Full blown consumer slump unlikely, but retailers will face leaner times.
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