Household confidence is stabilising but consumers are still highly pessimistic about their personal finances, a closely watched survey shows.
The gradual easing of the lockdown lifted confidence by three points to 95.8 in May, according to an index published by YouGov and the Centre for Economics and Business Research. However, the index is still languishing below the 100 mark that separates optimism from pessimism.
The findings reflect fears that the economy will continue to struggle even after the lockdown is lifted. Economists are warning that the likelihood of a swift “V-shaped” recovery is increasingly slim as weak demand will persist and social distancing measures will make it difficult for some businesses to return to normal. This was reflected in the survey, with the sub-index for business activity over the coming year deteriorating from 111.9 to 111.6.
In its most recent Monetary Policy Report, the Bank of England warned that precautionary saving by anxious consumers would continue to dampen demand for some time. Rising unemployment and falling incomes will affect people’s propensity to spend, which will damage growth and could lead to even higher joblessness. The Bank expects the unemployment rate to more than double from below 4 per cent to a 26-year high of 9 per cent.
Fears about unemployment weighed on confidence, with the sub-index for job security falling from 109.6 to 109.1. The deterioration in sentiment probably reflects anxieties about the job retention scheme, which is supporting the incomes of millions of people. The programme will come to an end in the autumn and businesses will be asked to contribute towards the salaries of furloughed workers from August. Many analysts fear that unemployment will spike once the scheme is withdrawn.