Britons Start to Zip Their Wallets

28 March 2002

The growth in UK household incomes and its concomitant consumer boom look as if they could abruptly go into reverse.

During most of 2001, British households enjoyed the steepest rise in real disposable income – 5.1 per cent – since the 1988 boom, reports the latest monthly survey of consumer confidence conducted by research group GfK on behalf of the European Commission. But disposable income growth abruptly juddered to a near halt in the last quarter of 2001, falling to just 0.2 per cent against the 1.4 per cent rise seen in the third quarter.

As a result, reports GfK, the headline confidence index edged downward from February’s +5 level to +3 in March, indicating that consumers have become less bullish about the current state of the economy and its future prospects.

Nonetheless, Brits are still cheerful over their personal finances, suggesting that there is no immediate threat to spending. Analysts raised their eyebrows at the decline in headline confidence at a time when the economy overall is recovering from its nadir at the end of last year.

But the nation could be living on borrowed time, believe some pessimists [realists?], with the UK balance of payments deficit orbiting in Q4 at a record £7.6bn - up from £2.4bn in Q3. The exceptional surge was triggered by a £3.8 billion slump in earnings on direct investment abroad and an increase in EU payments to their normal levels in the wake of previous rebates. Neither situation is expected to persist.

The trade deficit was broadly unchanged at £8.4 billion.

Data sourced from: The Times (London); additional content by WARC staff