A fall in confidence that could end in double dip

The Chancellor can no longer sit idly by.

I am beginning to sound like a broken record as the bad data news on the UK economy continues to pile up. Things on the economic front are really not good and, most worrying, are worsening fast before our very eyes.

The major release of the results of the European Commission Economic Sentiment Index, based on business and consumer surveys in August 2011, was a real shocker. The index is made up of five components based on business surveys in industry, services, manufacturing and retail, as well as a consumer survey. These are conducted in identical form in all 27 member countries and are available as a pdf file or can be downloaded as Excel files. Check them out -- they are scary!

In August, the ESI declined by 5.0 points to 97.3 in the EU and by 4.7 points to 98.3 in the euro area. This decline resulted from a broad-based deterioration in sentiment across the sectors, with losses in confidence being particularly marked in services, retail trade and among consumers. Only the construction sector in the euro area recorded an improvement.

Among the largest member states, Germany (-5.7 points) and the UK (-5.6) reported the strongest decreases in sentiment, followed by Poland (-3.6), the Netherlands (-3.0) and, to a lesser extent, Italy (-0.7), while the ESI remained broadly unchanged in Spain (-0.3). The ESI remains above its long-term average only in Germany and stands at 92.9 in the UK, having fallen from 104.6 in March.

Consumer confidence has continued its steady fall and is now at around the same level it was in May 2009 -- and it continues to drop.

Retail and services confidence

Of particular concern in the UK, though, was the dramatic collapse in confidence among businesses in services and retail. This is illustrated in the graph (above), which shows the sharp fall in both surveys over the past three or four months. This is of particular concern, given that the two surveys tracked very well the collapse of output at the onset of recession.

The two surveys started to fall sharply from March 2008 as the economy headed into recession, which was dated as starting in the second quarter of 2008, based on negative GDP growth.

We are able to explore further the reasons for the fall in both sectors as the European Commission provides more disaggregated detail. It is apparent that in both sectors, demand has fallen markedly and expectations for the future are increasingly pessimistic. Retailers are reporting rising inventory levels due to lack of sales.

 

Evidence of doom and gloom in the massive service sector was also reported on Tuesday in the CBI's survey of service-sector firms. Business volumes fell in the UK services sector in the past quarter, at the fastest rate since November 2009, the CBI found. Firms in business and professional services, which had been growing slowly, saw volumes contract unexpectedly.

Volumes of business in consumer services also fell -- and at the fastest rate since November 2009. Richard Woolhouse, the CBI's Head of Fiscal Policy, said:

Activity has fallen across the services sector for the first time since November 2009. This quarter we've seen more evidence of the ongoing decline in consumer services spending, as people with increasingly squeezed household incomes are forced to cut back their discretionary spending.

The concern is that this drop in business and consumer confidence is a prelude to a double-dip recession. I assume that the Chancellor George Osborne will continue to assert that his policies are working. Now that both businesses and consumers are running scared, however, Osborne can no longer sit idly by and assert that all is well. It is time for further fiscal stimulus.

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

Ukip's Nigel Farage and Paul Nuttall. Photo: Getty
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Is the general election 2017 the end of Ukip?

Ukip led the way to Brexit, but now the party is on less than 10 per cent in the polls. 

Ukip could be finished. Ukip has only ever had two MPs, but it held an outside influence on politics: without it, we’d probably never have had the EU referendum. But Brexit has turned Ukip into a single-issue party without an issue. Ukip’s sole remaining MP, Douglas Carswell, left the party in March 2017, and told Sky News’ Adam Boulton that there was “no point” to the party anymore. 

Not everyone in Ukip has given up, though: Nigel Farage told Peston on Sunday that Ukip “will survive”, and current leader Paul Nuttall will be contesting a seat this year. But Ukip is standing in fewer constituencies than last time thanks to a shortage of both money and people. Who benefits if Ukip is finished? It’s likely to be the Tories. 

Is Ukip finished? 

What are Ukip's poll ratings?

Ukip’s poll ratings peaked in June 2016 at 16 per cent. Since the leave campaign’s success, that has steadily declined so that Ukip is going into the 2017 general election on 4 per cent, according to the latest polls. If the polls can be trusted, that’s a serious collapse.

Can Ukip get anymore MPs?

In the 2015 general election Ukip contested nearly every seat and got 13 per cent of the vote, making it the third biggest party (although is only returned one MP). Now Ukip is reportedly struggling to find candidates and could stand in as few as 100 seats. Ukip leader Paul Nuttall will stand in Boston and Skegness, but both ex-leader Nigel Farage and donor Arron Banks have ruled themselves out of running this time.

How many members does Ukip have?

Ukip’s membership declined from 45,994 at the 2015 general election to 39,000 in 2016. That’s a worrying sign for any political party, which relies on grassroots memberships to put in the campaigning legwork.

What does Ukip's decline mean for Labour and the Conservatives? 

The rise of Ukip took votes from both the Conservatives and Labour, with a nationalist message that appealed to disaffected voters from both right and left. But the decline of Ukip only seems to be helping the Conservatives. Stephen Bush has written about how in Wales voting Ukip seems to have been a gateway drug for traditional Labour voters who are now backing the mainstream right; so the voters Ukip took from the Conservatives are reverting to the Conservatives, and the ones they took from Labour are transferring to the Conservatives too.

Ukip might be finished as an electoral force, but its influence on the rest of British politics will be felt for many years yet. 

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