David Prosser: The message from consumers: the Bankmust bail us out
Friday 22 October 2010
Outlook The second successive fall in monthly retail sales cannot be directly attributed to the measures unveiled in Wednesday's spending review, since the data is for September. Still, the precipitous fall-off in consumer confidence we have seen since the Chancellor's emergency Budget in June provides the biggest clue as to why spending is falling: people are spooked by the prospect of the austerity ahead (not to mention the million job losses expected as a result of the spending review).
Mervyn King, the Governor of the Bank of England, who has been a cheerleader for early and tough action against the deficit, has also made it clear that the Monetary Policy Committee (MPC) stands ready to intervene if it looks as if fiscal policy is jeopardising Britain's economic recovery (an offer George Osborne yesterday invited him to make good on).
So far, the MPC remains split – seven members voted for no change to interest rates or quantitative easing last month, while Adam Posen and Andrew Sentance, respectively, backed a softening and hardening of policy.
The minutes of the MPC meeting that reveal this voting pattern make interesting reading. They show that one of the most important considerations in moremembers of the committee not joining Mr Posen in calling for a renewal of quantitative easing (QE) was that consumers are proving more resilient than had been expected. That resilience now looks to be cracking by the day. The latest fall in high street sales reflects what retailers have been saying for some time: it is getting harder to persuade shoppers to part with their money and the outlook for the next 12 months is poor.
The minutes show that the otherfactor in the MPC's reluctance so far to take the risk of an even longer period of elevated inflation that an early return to QE might prompt was some tentative evidence lending is finally easing.
It is not clear what this evidence is. The Bank of England's Trends In Lending report, published yesterday, suggests that while the largest businesses may finally be beginning to see credit conditions relax, small and medium-sized companies are no better off. Nor does there appear to have been a thaw in consumer credit.
The Coalition is determined to rebalance Britain's economy and hopes the recovery will be led by exports. Few would take issue with such ambitions, but in the short term, the recovery will stand or fall on the strength of consumer spending. There is no reason to think confidence will return as the spending review is implemented and every reason to be fearful for growth. Over to you, Mervyn.
- 1 Forget 'The Dress': Here are five of the biggest news stories you might have missed
- 2 The black and blue dress: Makers considering a white and gold version
- 3 Prince Harry leaving the armed forced to pursue conservation projects in Africa
- 4 PornHub turns masturbation into energy in bid to save the planet
- 5 The remarkable archaeological underwater discovery that could open up a new chapter in the study of European and British prehistory
Boris Nemtsov shot dead: Outspoken Putin critic who had expressed fears for his life is killed near the Kremlin
Leonard Nimoy dead: Star Trek Spock actor dies after suffering lung disease
PornHub turns masturbation into energy in bid to save the planet
Ukraine crisis: Top Chinese diplomat backs Putin, says West should 'abandon zero-sum mentality'
White and gold or blue and black – what colour is the dress? An eyewitness gives a definitive answer
New theory could prove how life began and disprove God
Half of Ukip voters say they are prejudiced against people of other races
'Cash for access' scandal: Sir Malcolm Rifkind says 'unrealistic' for MPs to live on £67,000 salary
This is what it's like to be dead, according to a guy who died for a bit
'Jihadi John': CAGE representative storms off Sky News accusing Kay Burley of Islamophobia
Aqsa Mahmood branded a 'disgrace' by her parents after claims she recruited three UK girls flying to Middle East
iJobs Money & Business
£40000 - £50000 per annum + pro rata: SThree: SThree Group have been well esta...
£30000 - £37000 per annum: Recruitment Genius: Established in 1999, a highly r...
£250-£300 Day Rate: Jemma Gent: Are you a qualified accountant with strong exp...
£230 - £260 Day Rate: Jemma Gent: Do you want to stamp your footprint in histo...