Consumer recovery not yet secure: Fall in purchasing intentions casts shadow over improvement in demand

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A RECOVERY in consumer spending has yet to be established and confidence may suffer setbacks in the months ahead, two new surveys suggest today.

Despite a steady improvement in consumer confidence during the first quarter of the year, Infolink, the consumer credit information organisation, believes that a considerable rise in demand is required to ensure that the recovery is sustained.

Brian Bailey, Infolink's chairman, said: '1992 witnessed low levels of consumer demand for credit. Therefore demand needs to rise considerably in the coming months to ensure that a recovery is robust and sustained.'

However, Infolink said that earlier fears that the Budget might have depressed demand appeared unjustified. In the first quarter, retail, finance house and new car loans rose above levels achieved a year ago.

Credit inquiries in March suggest that consumer confidence is rising, but Infolink said these inquiries had to be translated into credit advances to ensure recovery.

The most encouraging rise in demand was for home loans. Infolink said mortgage applications in March showed the smallest year-on-year fall for some time, supporting reports of a revival in the housing market.

The Infolink survey is likely to be confirmed when official figures for credit business in March are released today. The figures are expected to show a pounds 90m rise in new consumer credit, almost double the advance made in February.

Verdict Research also suggests that the recovery has yet to take root firmly. Its latest survey of consumer purchasing intentions showed a decline in April from the month before, the first fall since December.

'This recovery will be brittle and fragile, most of the rest of this year will be characterised by three steps forward, two steps back,' Verdict said.

The firm said that a fall in car purchasing intentions was one of the main reasons for overall intentions falling last month. Figures released last week showed that new car sales slipped by 1.9 per cent last month, the first year-on- year decline for seven months.

Factory output is set to recover strongly this year, with growth of some 3 per cent, according to Lloyds Bank. Output per head will rise about 7 per cent in 1993 while falling unit labour costs will help to sustain a substantial improvement in competitiveness. But the bank warns that if firms raise prices they will risk losing competitive advantage and increase the chances of higher interest rates.