Although yesterday’s 2014 fourth quarter GDP figures confirmed the fastest growth since before the financial crisis, the economy risks slowing in early 2015 as consumer confidence continues to be restrained.
The first quarter of 2015 has got off to a muted start with the YouGov/Cebr Consumer Confidence Index rising only slightly in January as households’ economic optimism remains tempered.
Despite talk of the recovery gaining ground, economic optimism in the British public is stuck at similar levels as early 2014 and it has dropped away from its highpoint of last summer as the housing market cools.
Closer analysis of the data in YouGov’s Household Economic Activity Tracker shows that five of the eight measures that make up the index increased, including both measures that focus on household finances.
At the same time, three have fallen during this month, including both the forward and backward-looking house price metrics.
However, despite this mild increase, for many people household finances are still too stretched to generate optimism. And despite good news on the utilities and fuel price front, to date this welcome relief has not fed through to consumers and they still don’t feel the recovery in their wallets.
More people still feel they are getting worse off each month than feel they are better off. The latest figures show that only nine per cent have seen their household financial situation improve over last month.
Notably, this is not just the less prosperous regions dragging down London and the south east. Around twice as many people in every British region feel their household finances have deteriorated over the previous thirty days as those who feel their finances have improved.
We are still struggling to see clear signs that consumers feel the benefit of faster growth in the wider economy. Logic says this should start to change as pay growth finally runs ahead of inflation. But it will take time for UK households to make up years of lost growth from the aftermath of the crisis. As the election approaches consumers still don’t feel like they have reached economic “escape velocity”.