tony's blog

Thursday, August 12, 2010

Confidence tricks

Everywhere you look confidence is an issue. The recent Nationwide Consumer Confidence Index reflects that consumer confidence continued to fall during July. Economic news from the Bank of England suggests we will charter “choppy waters” for the coming 12 to 18 months. But perhaps the real figures of note behind yesterday’s revisions to growth and inflation (and indeed future consumer sentiment) are the unemployment figures. While unemployment fell 3,800, the number taking part-time jobs rocketed 115,000 to a record 7.84 million and the number of long-term unemployed grew. Furthermore wages slipped further behind the cost of living.

Unemployment (or fear of it) really matters because while the fear of what is coming can already be seen through the consumer confidence survey, the impact of these cuts has yet to be felt. Will the private sector be in a position to take up the slack created by the slaying of public sector excess? This is the single biggest factor that will determine not only the success of the coalition but also banks’ appetite for lending.

Whether in mortgages or business loans the banks remain nervous. The holding strategy recently announced of setting up a committee to examine the lack of small business lending sums up the banks current attitude. If we are really going to get liquidity back then banking and investor confidence remains key. They not only have to see a future but believe it is attainable. This is a waiting game but also a catch twenty two. Again confidence is the key.
What is certain is that as soon as one moves, the others will.



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