Consumer optimism at highest level since 1980s

Diane Coyle
Monday 28 April 1997 23:02 BST
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Consumer confidence is back at its highest since the late 1980s, according to a new survey yesterday. Further evidence of the booming economy came from a strong pick-up in the commercial property market, although the housing market apparently paused for breath last month.

"It is eerily reminiscent of the last boom," said Geoffrey Dicks, an economist at NatWest Markets. "The good thing is that the election has come earlier in the cycle this time around, and the government will be able to tighten policy as soon as it is out of the way."

Consumer optimism picked up sharply across the country in the first quarter of the year, according to a survey published by Business Strategies Ltd (BSL).

The consultancy found that, thanks to the prospect of free building society shares, optimism about the economy in general and household finances had risen markedly, while concern about unemployment was falling. The balance of optimists over pessimists, at 24 per cent, was the highest since mid- 1988.

The survey reported that the South-east and the northern regions would gain most from the windfalls. The former has the biggest population in the UK, while savers in Yorkshire and the North-east will benefit most from the Halifax and Northern Rock conversions.

David Fell, BSL director, said: "The feelgood factor is being put down to the windfall gains and consumers are not seeing the Government as being responsible for these."

But he said the economy was not yet expanding on a late- 1980s scale. "The connection between house prices, confidence and consumer spending is not as strong this time around," he said.

Confidence rose fastest in the East Midlands and the North, but house price rises have been greatest in London and parts of the South-east.

There was some support for this view in mortgage lending figures published by the British Bankers' Association yesterday. Although the banks lent 10 per cent more than their recent monthly average in March, the BBA said this reflected an increase in their market share.

Tim Sweeney, director-general, said: "Overall demand for mortgage finance has been restrained somewhat." He suggested fears of higher interest rates after the election and a shortage of properties in some areas might be to blame.

The commercial property market has continued to see strong demand, according to a report from the Royal Institute of Chartered Surveyors yesterday. Confidence in the sector was the highest since the survey began three years ago.

Graham Chase of Chase & Partners, a RICS spokesman, said: "Confidence seems to be strong across the regions." The difference between now and the late 1980s was the absence of much speculative development so far in this cycle, he said.

Despite the differences between this boom and the last one, all economists agree that the windfalls this year make for a great deal of uncertainty about how fast the economy will grow.

Mr Dicks said that even on a cautious assumption about how much of their windfalls people would spend, consumer spending would grow by 4 per cent this year. It would need to be reduced in order to head off the threat to inflation next year.

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