The Chancellor George Osborne prepares for Tuesday’s Autumn Statement
Source: Getty Images
Confidence is at the core of the economic crisis. Governments’ decisions are being driven by maintaining confidence among the markets. Consumer and business confidence is measured, reported and worried about more than we’ve ever seen. Even confidence among credit rating agencies has become a topic of public concern: half of Europeans now say they are aware of credit rating agencies and two thirds think they’ve had a significant role in the crisis – something we just wouldn’t have seen even a few months ago.
We’ve also seen huge increases in our concern about public debt. It hadn’t particularly bothered us in much of Western Europe. As recently as last year, there were major economies with significant proportions of “debt deniers”, where there were high levels of public debt, but people didn’t think much needed to be done about it. But, over the course of the last year, the majority of the public in all high-debt countries have fallen into line.
The drivers of confidence among markets on the one hand and businesses and consumers on the other have been set up as diametrically opposed: one is about debt reduction, the other is about plans for growth. Whether this is an economic fact or not, it has led to a particularly self-defeating cycle, where governments need confidence for growth in order to reduce the debt, but are also constantly reminding us about the perilous state of our finances to explain the need for cuts. The UK government, and others in Europe, have been largely successful in convincing us that we’re in trouble, but, not surprisingly, it hasn’t helped with confidence.
And this concern about confidence isn’t just theoretical – it’s transmission to direct economic outcomes can be measured. Our analysis shows that a simple survey question on consumer sentiment about the future of the economy has been a better predictor of actual UK growth in recent years than economists’ forecasts. This isn’t because the public are studying the markets, drawing on their internal algorithms and accurately predicting what will happen. It’s simply because our feelings about the future influence our spending and investment decisions now. And all the indicators you’ll have seen have been heading south.
The UK government was one of the first to get the message across on debt – but the reasons given have shifted. In the run up to and following the election this was based very clearly on an attack on the profligacy of the previous government. This chimed with the public, and still does – Labour’s spending still comes top in lists for the reason for the economic downturn.
But more recently the focus has been on sticking to the plan to avoid global markets turning on us, as they have in other countries in Europe – which necessarily stokes up fear and amplifies the problems experienced elsewhere. This is an effective political approach, and again chimes with public opinion, particularly our in-built suspicion of Europe and satisfaction with having kept our distance – but it is ultimately self-destructive.
The key currency for the Autumn Statement will again be confidence – the questions remain whose confidence the Chancellor sees as most important and how he thinks it can be gained.
Bobby Duffy is managing director of Ipsos MORI