Consumer Confidence in the US and UK

US consumer confidence declined in May 2004 due to rising inflation and higher interest rates and despite better news on employment, while the interest rate rise in the UK left consumer confidence unmoved, according to separate surveys by the University of Michigan and GfK Martin Hamblin.

In the US, the Index of Consumer Sentiment was 90.2 in the May 2004 survey, down both on April (94.2) and the figure for last May (92.1). The Expectations Index fell from 87.3 in April to 81.6 in the May survey - a year ago this was nearly ten points higher at 91.4, due to the rapid collapse of Iraq's military.

An inflation rate of 3.3% is expected for the year ahead, well above the 2.0% expected last May, although according to Richard Curtin, the Director of the University of Michigan's Surveys of Consumers, the factors causing this are seen to be temporary and expectations over five years are more optimistic.

Curtin says consumers expect higher interest rates to increase the cost of credit and slow the pace of economic growth in the year ahead. 'Rather than a shift toward pessimism, the data show a continuation of the longstanding trend of mixed evaluations of the economy, only this time consumers hold more favorable employment expectations and less favorable inflation and interest rate expectations, the opposite of what occurred during the past few years'.

He adds that confidence remains strong enough to support a healthy expansion in consumer spending during the year ahead. 'Consumers still anticipate that the pace of economic growth will be strong enough to continue to produce more new jobs'. Indeed, in the May 2004 survey more consumers than at any other time in the past twenty years reported hearing about increases in employment.

Record numbers of consumers (85%) are expecting an increase in interest rates, and are keenly aware of the advantages of obtaining a mortgage before this cuts in. Generally, rising inflation has made consumers less optimistic about their future financial prospects and living standards.


In the UK, the Consumer Confidence Survey carried out by Martin Hamblin GfK on behalf of the European Commission reported an unchanged overall score of -2 for May. This is one point higher than the same period last year but above the annual average.

Feelings about the development of personal finances are virtually unchanged - perceptions of the last twelve months are still at -1 while expectations for the future have fallen by one point to +9.

In terms of the general economic situation in the country, perceptions have improved continually since September 03 but have now stopped at -18, still much higher than the same period in 2003 (-30). Expectations for the next twelve months have fallen continually since January - in May they dropped 2 more points to -14.

The major purchases climate measure remains at +13 in May. This is four points lower than May last year (+17) and is below the annual average. Perception of whether now is a good time to save remains at similar levels to the last three months, falling one point to +15 in May.

Roger Wright, Director of Martin Hamblin GfK, thinks it may be too early to see the effect of the Bank of England interest rate rise to 4.25% earlier in the month, with widespread anticipation of further rises.

Martin Hamblin GfK interviewed 2029 individuals aged 16+ between 29th April and 18th May 2004. The company's web site is at www.martinhamblin-gfk.com

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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