What rebalancing?
Consumer confidence continued to strengthen in February, reaching a seasonally-adjusted -2 – well above the average of -9 since 1990 and the highest since February 2006. The rise was driven by improved expectations about the labour market and wider economy. A solid consumption recovery may already be under way – see first chart.
The confidence rise supports the view that the recent narrowing of the Conservative / Labour poll lead reflects economic factors, as discussed in the last post.
Interestingly, consumers' inflation expectations, having risen in prior months, stabilised in February, despite retail price inflation accelerating to an annual 3.7% in January – second chart. Households may have been influenced by the dovish forecasts in the latest Inflation Report, even though the Bank of England failed to predict the current spike. With RPI inflation likely to rise significantly further, this stabilisation may prove temporary. Retailers' price expectations are notably stronger than consumers' – second chart.
The confidence revival contrasts with weak news on business investment, which fell by a further 5.8% in the fourth quarter. Provisional investment estimates, however, are often revised substantially and the large decline is difficult to reconcile with rises in capital goods production and imports last quarter.
Reader Comments (1)
"Households may have been influenced by the dovish forecasts in the latest Inflation Report"
Errrmmm - no. A few fund managers may have been influenced, but, in the real world of whitevanman and OK magazine, households do NOT study BoE Inflation Reports. Sorry.