And the bad news keeps on coming . . .

Now US confidence plummets.

The dangers of the world economy slowing are increasing by the minute.

In the hour or so since I wrote this, the data from the Conference Board was published on consumer confidence in the United States. The index, which had improved slightly in July, plummeted in August. The index now stands at 44.5 (1985=100), down from 59.2 in July, which is its largest fall since the 23-point decline in October 2008, when the collapse of Lehman Brothers sent reverberations around the world.

The drop was well below the consensus forecast among economists who were polled, of 52.0. The Present Situation Index decreased to 33.3 from 35.7. The Expectations Index collapsed, falling to 51.9 from 74.9 last month. This is consistent with the Reuters/University of Michigan Consumer Confidence Index, which dropped this month to the lowest level since November 2008.

Says Lynn Franco, director of the Conference Board Consumer Research Centre:

Consumer confidence deteriorated sharply in August, as consumers grew significantly more pessimistic about the short-term outlook. The index is now at its lowest level in more than two years (April 2009, 40.8). A contributing factor may have been the debt ceiling discussions since the decline in confidence was well underway before the S&P downgrade. Consumers' assessment of current conditions, on the other hand, posted only a modest decline as employment conditions continue to suppress confidence.

Chris Williamson, chief economist at Markit has it right:

The survey data highlight how the increasingly downbeat news flow on both sides of the Atlantic in terms of stalling economic recoveries, debt worries and the lack of clarity on any course of remedial action from policymakers is causing consumers to retrench further. This is bad news not just for the US and Eurozone, but for the global economic recovery as a whole, as rising consumer spending in the developed world has an important role to play in driving worldwide economic growth. Expect to see growth forecasts revised down in the light of these new numbers.

Bad news on top of bad. I am still waiting for a response from George "Slasher" Osborne.

David Blanchflower is economics editor of the New Statesman and professor of economics at Dartmouth College, New Hampshire

Getty Images.
Show Hide image

Why relations between Theresa May and Philip Hammond became tense so quickly

The political imperative of controlling immigration is clashing with the economic imperative of maintaining growth. 

There is no relationship in government more important than that between the prime minister and the chancellor. When Theresa May entered No.10, she chose Philip Hammond, a dependable technocrat and long-standing ally who she had known since Oxford University. 

But relations between the pair have proved far tenser than anticipated. On Wednesday, Hammond suggested that students could be excluded from the net migration target. "We are having conversations within government about the most appropriate way to record and address net migration," he told the Treasury select committee. The Chancellor, in common with many others, has long regarded the inclusion of students as an obstacle to growth. 

The following day Hammond was publicly rebuked by No.10. "Our position on who is included in the figures has not changed, and we are categorically not reviewing whether or not students are included," a spokesman said (as I reported in advance, May believes that the public would see this move as "a fix"). 

This is not the only clash in May's first 100 days. Hammond was aggrieved by the Prime Minister's criticisms of loose monetary policy (which forced No.10 to state that it "respects the independence of the Bank of England") and is resisting tougher controls on foreign takeovers. The Chancellor has also struck a more sceptical tone on the UK's economic prospects. "It is clear to me that the British people did not vote on June 23 to become poorer," he declared in his conference speech, a signal that national prosperity must come before control of immigration. 

May and Hammond's relationship was never going to match the remarkable bond between David Cameron and George Osborne. But should relations worsen it risks becoming closer to that beween Gordon Brown and Alistair Darling. Like Hammond, Darling entered the Treasury as a calm technocrat and an ally of the PM. But the extraordinary circumstances of the financial crisis transformed him into a far more assertive figure.

In times of turmoil, there is an inevitable clash between political and economic priorities. As prime minister, Brown resisted talk of cuts for fear of the electoral consequences. But as chancellor, Darling was more concerned with the bottom line (backing a rise in VAT). By analogy, May is focused on the political imperative of controlling immigration, while Hammond is focused on the economic imperative of maintaining growth. If their relationship is to endure far tougher times they will soon need to find a middle way. 

George Eaton is political editor of the New Statesman.