Inflation fears grow for consumers
Rising oil and food prices plus increased mortgage payments have hit consumer confidence with a record number of consumer believing prices rose in 2007 and are set to rise further in 2008, according to the latest consumer barometer from Lloyds TSB Corporate Markets.
The survey of 2,000 consumers in November found that 73% believe prices rose in the last 12 months while the balance of consumers believing prices are higher rather than lower hit 70%, the highest result since the survey began in November 2004. The balance of consumers expecting prices to rise over the next twelve months was also at a record high of 81%.
Continuing concern around the turmoil in the credit markets and growing uncertainty over the economic outlook has affected consumers’ employment confidence. Although official labour market data remained robust in October, the balance of consumers believing employment conditions are better than 12 months ago, rather than worse, fell to -27% in November, the lowest rate since November 2006. These findings are supported by official data which showed retail sales fell in October for the first time in six months.
Despite concerns about prices and possibly because employment prospects have taken a knock, an increasing number of consumers believe interest rates will fall next year. The balance of respondents expecting interest rates to be higher rather than lower dropped to 43%, from 53% in October.
Trevor Williams, chief economist at Lloyds TSB Corporate Markets, said: “A record number of consumers are feeling the pressure of higher prices and this, together with worsening employment prospects, is clearly having a negative impact on consumer spending. But as consumers struggle to pay their bills, we expect demand for higher wages to increase – official data showed wage growth hit a six-month high in September.
“It’s now pretty much expected – by economists and consumers alike – that the Bank of England will begin to cut interest rates in coming months. But if prices continue to rise next year, as consumers predict, this will come as little relief to many household budgets.”