High Street pessimism
GfK NOP’s Consumer Confidence index for May dropped five points to minus 29, the lowest since November 1990. Confidence in the UK economy over the next 12 months is lower than at any time since February 1993 and major purchases are at their lowest since the index began in 1983.
The results reflect popular expectation of a recession, said GfK NOP’s Rachel Joy. “Future months may see even further fall in confidence, as increasing inflation and dropping house prices make reigning in spending even more likely.”
GfK’s report follows yesterday’s CBI retail survey showing a second drop in monthly retail sales.
Exchange rate issues
In what may prove a benefit to the UK economy, the Euro has strengthened strongly as central banks in Asia, the Middle East and Russia have poured their current account surpluses into it as an alternative to the dollar.
While this development has helped to ease the credit crisis in the Eurozone, it has made European economies less competitive. The economies most affected are those of Portugal, Italy, Greece and Spain.
Also, the French bank BNP Paribas reports foreign direct investment in the Eurozone has turned sharply negative, with even national champions like Airbus outsourcing at an accelerated pace.
Relative devaluation may win a short-term trading advantage for British exporters, but history shows that in the long term it only postpones necessary adjustments and restructuring.
