Election uncertainty hits confidence


April consumer confidence slipped 1 point to –16 in the latest GfK survey for The European Commission. This is the second successive 1-point monthly fall and reverses the mood of optimism that underpinned the 5-point rise in January and February.


Small changes in confidence –either up or down – have been a feature of consumer attitudes in the months before previous general elections. In March 1992 – the month before the Tories were surprisingly returned following the 1990-1991 recession – confidence rose 2 points. More recently in April 2005 confidence was unchanged on the month at zero.


In this month’s GfK survey, the weakest link is the spending climate measure for making major purchases of household goods. This fell 3 points to –20, its lowest level since last August, and is only 2 points higher than a year ago. Squeezed household income from weak employment earnings and rising inflation together with worries about future tax rises and job losses are likely reasons for the drop.


For the first time in many months the present measures of personal finances (up 1 point to –14) and the general economic situation (up 2 points to –47) both rose, while the two future measures of personal finances and the general economic situation both fell (down by 2 points to 2 and by 1 point to –1 respectively). Both present measures remain well below their long- term averages.


Fewer households are currently saving, with more households – across all income bands - making do this month. On the brighter side the proportion of households running into debt dropped to 4% from 5% in March, its best level since last November.


Compared to March 1992 households are in a much better financial position. Then, only 32% of households were saving compared to 44% currently, 49% were making do (43% currently) and 19% were struggling of which 8% were running into debt (12% struggling, 4% running into debt currently). Low current interest rates and a floating currency are the main reasons why this recession has seen consumers less financially hit than in 1992 when bank rate was at 10.5% and sterling was part of the exchange rate mechanism.


Generally confidence has risen following a General Election – with the exception of May 2005 when confidence surprisingly fell- and a hung Parliament may see a similar situation of falling confidence in 2010 as uncertainty is set to prevail. Establishing a cabinet will be the first challenge for the new government and, with a large number of new MPs, Parliament will take much longer to settle down. Fortunately the problems of Greece and the Eurozone may shield the UK from major market sell-offs..