View from City Road: Consumers poised to tighten their belts

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High street spending volume has been recovering steadily for more than a year, and yesterday's money supply and credit figures suggest the trend remains intact. But two important uncertainties overshadow prospects for retailers: reaction to the Budget and the trend in unemployment.

The Chancellor's decision to present three Budgets in one last month provides a fascinating test of consumers' far-sightedness. Early opinion poll evidence suggests that consumers were surprised by the scale of the Government's belt-tightening and that they may soon respond with some of their own.

As well as taxes, consumers have their jobs to worry about. Fear of unemployment is likely to slow the recovery in consumer spending for as long as the jobless total is rising. The Ernst and Young Item Club, which uses the Treasury's computer model of the economy, does not expect recovery to be strong enough to bear down on unemployment until the end of 1996, which does not bode well.

But Item may be too pessimistic. The labour force is growing less quickly than in the 1980s, firms appear to have been able to shed jobs earlier in this recession than the last and industry may be so enfeebled that it needs to employ more people when the recovery is still very weak. Warwick University's prediction yesterday that unemployment will peak at 3.1 million suggests that the worst may already be over.

If consumer spending does suffer a setback in the coming months, adverse reaction to the Budget seems more likely to provide it than another surge in unemployment. Lucky that the pound's recent strength suggests the Chancellor might yet have another interest rate cut in reserve.