Celebrating start of a new recovery?

Celebrating start of new recovery?

What a golden summer it has been! Rarely do the weather, the economy and sporting success all shine together. In addition the nation has celebrated the birth of royal baby George.

Even politicians seem to be working together to re-shape a troubled world and try and resolve very difficult issues peacefully – which may help in reducing uncertainty (and prices) in the vital energy market.

The mood of the consumer has changed considerably in the past year. While last summer’s Olympics / Paralympics brought the nation together, it did not shift the pessimism that consumers felt about the economy and their own financial situation.

Santander UK CEO Ana Botin recently cited the public as ‘having won a gold medal for grumbling’ in the run up to the Olympics and of ‘a culture of pessimism holding back recovery’. Is that true? Brand Britannia seems up and running again. A wave of optimism has infected the public, especially since last May.

A net +9% of people feel that the economy will get better in the next 12 months compared to a net -34% who felt it would get better a year ago. More people feel their personal finances will get better in the next year; a net +2% compared to -14% in August 2012.

Such optimism has helped the GfK headline confidence measure jump 9 points in the summer months to -13, its best level since April 2010.

Driving employment

What is driving this rising optimism is a remarkable shift in unemployment expectations. Official data shows employment at a record level (29.84 million), up 275,000 on a year ago. Some 357,000 more employees are working full time compared to a year ago. Unemployment is 105,000 lower at 2.49 million.

GfK data shows the net proportion of people expecting unemployment to worsen in the next 12 months to have fallen from 52% in August 2012 to 19% currently, the lowest level since June 2001.

New BOE Governor, Mark Carney, will have his work cut out to keep bank rate at 0.5%. With the public at its most optimistic about unemployment for a decade, the 7% trigger unemployment rate may be reached much sooner than expected.

Many economic datasets reflect the nation recovering. The UK scored a rare No 1 euro hit in August reaching the top of the European Commission Economic Sentiment table. September holiday-makers are seeing more currency for their pounds.

JGFR research into the wealth of the nation has found more people with savings / investments up to £50,000 but fewer with over £50,000 in the first half of 2013. Recently the 2013 ONS Blue Book shows the net-worth of households rose by 6% in 2012 to £7.6 trillion and looks set to break £8 trillion in 2013. How all can share in this increase in wealth is the burning question that will be discussed in the party conferences and will be at the centre of the 2015 General Election campaign.

The focus this autumn will again be on the banks. The banking crash of 2008 did much to cause the British to turn very pessimistic. The return in optimism in recent months owes little to any positive activity of banks; they continue to be beset by ongoing mis-selling scandals with the £16 billion or so of PPI claims helping to boost household finances and big-ticket purchases such as cars. The much-heralded Funding for Lending scheme has had limited success in stimulating activity.

News of the return of a minority of Lloyds Bank shares to the private sector provides some belief that the tide has turned in retail banking although the problems of the Co-operative Bank have yet to be resolved and could get very messy.

This autumn sees the return of the TSB brand to the High Street together with the launch of faster payments between banks. A new dawn of retail banking appears underway with a distinct 1980s feel as yet more efforts are made to break up the dominance of the major high street brands.

Promiscuous banking

While the regulators and even the banks themselves may want to make consumers more promiscuous in banking relationships, consumers themselves are more likely to want respect and a feeling of being rewarded for their loyalty. To switch or not to switch banks will be a strong theme this autumn attracting much media attention. The JGFR Main Financial Services Provider league table will show how the new retail banking market is shaping up.

With the public returning from their summer break in more confident mood, the prospects for strong financial activity in the key pre-Christmas period appear the best for several years. The end-September GfK /JGFR Q4 Financial Activity Barometer (FAB) will produce a valuable indicator of the public’s intended saving, investment and borrowing behaviour in the next 6 months.

June’s FAB data was mixed with debt repayment still a key priority. We expect the housing market data to be stronger (especially mortgages), and in savings / investment activity in the wake of much improved household finance data this summer. The market that has really surprised on the upside in the past year is the car market – a great marketing /sales success story given weak car purchasing intentions.

Regional confidence

Confidence and optimism show variations across different regions and segments. Londoners are the most confident while people in the East of England are the most optimistic.

In recent months a growing confidence gap between men and women has emerged. A year ago men’s confidence (-28) was slightly better than women’s confidence (-30). Fast forward to August 2013 and the gap has widened to a multi-year record 13 points. Men’s confidence (-6) is at its highest since July 2007 pre-recession, while women’s confidence (-19) is at its best since April 2010.

A big factor in the gender confidence gap is much greater optimism among men. Combining the mean GfK personal financial and economic situations measures shows men’s optimism (+12), 27 points higher than women’s optimism (-15). Interestingly at the start of the Coalition government in May 2010 the gap was just 5 points with men’s optimism (-9) v women’s (-14).

Perhaps Ana Botin should have focused more on why women’s optimism is so weak relative to men’s. More broadly is the weakness of women’s confidence a factor holding back recovery?

While men are celebrating a full recovery to pre-recession days, they will be celebrating alone.

Read more from John Gilbert.