James Moore: Don't be fooled by football and footfall

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The Independent Online

Outlook So the World Cup spendathon has materialised, at least if yesterday's retail sales figures are to be believed. Big-ticket electrical items were a major contributor to May numbers from the Office for National Statistics that were significantly better than expected. The high street's mini-boom is likely to be reflected in second-quarter GDP figures. There are many who will use this as vindication for the argument that cutting the deficit too early would be a bad thing. That would be the wrong conclusion to draw because the buoyant numbers are just a mirage.

The World Cup does not actually boost the economy by that much, at least on a net basis. It just brings all sorts of spending forward (notably on items such as the big, flat-screen TVs which have proved such a hit).

The retailers (and others) who are benefiting now may find the second half of the year is fairly bleak because it is not only the World Cup that is giving the sales figures some short-term froth. The chances are that next Tuesday will see the Chancellor announcing an increase in VAT. Even if he doesn't, there are plenty of people who have decided to get the big spending out of the way now as a precautionary measure. It is simply common sense given the uncertainties we face.

Consumer resilience has proved to be remarkably impressive over the past year. It's going to be tested as never before over the coming months as the impact of spending cuts, pay freezes and rising interest rates are felt down the line.

But if you want to see where not taking action on the deficit leads, just look at Spain, where (as highlighted in The Independent yesterday) fears are growing that it will be the next eurozone domino to topple. The Spanish did get a bond issue away yesterday, but the price was high – perhaps too high to be sustainable in the long term.

Fortunately, the perception is that Britain's new coalition Government is preparing a really nasty fiscal squeeze that the Spanish don't have the stomachs for. And perception is what matters when markets decide how much to charge for borrowing.

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