Housing market 'threat to growth': A new survey finds a weak link in the spending chain, writes Peter Torday

THE FLAGGING recovery in the housing market threatens to undermine modest growth in consumer spending, and confidence in the Government's ability to manage the country has sunk to a new low, a consumer survey warns today.

PA Cambridge Economic Consultants said its June index of current consumption showed a slight weakening from the previous quarterly poll of consumer trends, conducted in March. 'The main threat to the continued growth of consumers' expenditure at rates of about 2 per cent per annum, or above, is likely to come from housing market weakness,' it said.

Only 11 per cent of respondents surveyed expressed confidence in the Government, the lowest positive reading since the PACEC surveys were begun four years ago. By contrast, confidence in Labour has surged. The percentage of those believing a Labour government would manage the country effectively has risen steadily, to reach 28 per cent in June.

The survey suggests that voting intentions in the next General Election were mirrored in the recent results in the European and local elections. Respondents stating they would vote Conservative in the next election fell to 26 per cent against 44 per cent in the consultants' March 1992 survey, taken just before the last election. Support for Labour surged to 50 per cent from 37 per cent. But the proportion of 'don't knows' was relatively high at 17 per cent, the report said.

A separate survey by BBC1's Business Breakfast shows Tony Blair's bid for the Labour leadership has the overwhelming support of industry and the City. Of 33 businessmen and women and 20 City economists polled, 70 per cent from the City and 61 per cent from industry backed Mr Blair.

The PACEC survey meanwhile shows that confidence is recovering but remains subdued. Its confidence index rose to 78.2 in June from 71.6 per cent in March. A reading of 100 signifies that optimists and pessimists balance each other out.

Confidence fell sharply in the previous two surveys, probably as a result of the tax increases. Now, evidence has emerged that the housing market is under threat, with the number of people planning to buy a house falling to just over 5 per cent, against an average of 9 per cent during the previous three years.

The latest official figures for retail sales show consumer spending growing at an underlying rate of about 4 per cent. But retail sales figures account for only 40 per cent of consumption, and the PACEC survey's more downbeat findings reflect its broader coverage of consumer spending, especially for cars, which are excluded from official retail sales figures. The consultants said that planned consumption of everyday goods - food, clothing, books - remains fairly strong, while plans to purchase durable goods are mixed. Buying intentions for new cars are weak but for other durable goods remain similar to levels a year earlier and slightly up on March.

Household financial expectations for the short term have recovered strongly, even though they have yet to reach positive territory. The survey showed that an index of these expectations rose to 94 from a record low of 80 in March. Likewise, optimism over the employment outlook has improved slightly. PACEC's index of employment confidence rose to 94.8 in June, from 92.4 in March.

Looking further ahead, expectations for the coming year point to a robust recovery, with a growing number of respondents expecting their disposable income to increase.