Julian Jessop

The good economic news about people’s finances

If you believe the media coverage of the latest consumer confidence surveys, household spending is set to collapse under the weight of the cost of living crisis, dragging the UK economy into a deep recession. But how reliable are these signals?

As always, it is worth digging past the headlines. The GfK measure of consumer confidence did indeed fall to a record low in May. But people were less pessimistic about their own finances than they were about the economy as a whole.

This distinction is crucial. It is no surprise that people are worried about the general economic situation: we are constantly being told that the country is going down the plughole. But when it comes to people’s own finances, things do not look quite as bad.

What’s more, the forward-looking aspects of the surveys are generally holding up better than the backward-looking ones. People’s views of their personal finances over the next 12 months actually improved in May, albeit by just one point. This is not a ‘free fall’.

The YouGov/Cebr Consumer Confidence Index, released earlier this month, tells a similar story. The headlines focused on responses to the question, ‘compared to one month ago, how has your household’s financial situation changed?’ which tanked to a new record low in April. But this is not really telling us anything new. After all, April was the month when the energy price cap was lifted and National Insurance contributions went up. To be frank, I was more surprised this index was not even weaker.

Instead, the really valuable questions are on metrics like house prices and, most importantly, job security. These are still pretty resilient. This means that households with savings built up during the pandemic are more likely to be willing to use them to prop up spending even as disposable incomes fall.

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