Confidence levels continue to surprise – but for how long?

The economic sentiment indicator for April 2010 published by the European Commission continues to show confidence in the UK economy rising. The UK experience mirrors that across the European Union. The increase in the level of confidence in the UK economy seen in April, as measured by responses to questions posed to businesses and consumers, was the fifth consecutive monthly rise in sentiment.

There is, however, something of a divergence between the moods of UK businesses and consumers. Consumer confidence fell very slightly in April, which follows on from a small fall in March. These falls might reflect some uncertainty amongst consumers induced by the UK general election and, in particular, the extent of future fiscal tightening. In contrast, general business confidence rose in April, especially in the construction and manufacturing sectors.

Nonetheless, confidence is considerably higher across both consumers and businesses than it was a year ago. The increase has been of such magnitude that the economic sentiment indicator has now been above its long-run average for two months in a row. We would perhaps be rather naïve to expect this trend to continue, not least because of the financial rebuilding that households, banks, business and, of course, government will be pursuing. Therefore, it will be fascinating to see how enduring the current levels of confidence are and whether the slight weakening in sentiment amongst UK consumers is a sign of things to come.

Articles

Euro-zone economic sentiment rises in April MarketWatch, William Watts (29/4/10)
EU economic, business sentiment indicators ‘improving’ – poll Sofia Echo, Clive Leviev-Sawyer (29/4/10)
Euro economic sentiment up in April France24, AFP (29/4/10)

Data

Business and Consumer Surveys The Directorate General for Economic and Financial Affairs, European Commission
Consumer Confidence Nationwide Building Society

Questions