10 Aug 2010

Pandora’s budget box contains a Japanese surprise

George Osborne may have underestimated his ability to impact personally on the consciousness of the British people. After his ‘Emergency’ Budget in June, it appears the UK ran for the hills, cowering in fear at the looming axe man, writes Channel 4 News Economics Editor Faisal Islam.

Now, we would expect this of pay-frozen public sector workers fearing for their jobs and we would expect it of the direct suppliers to government: the IT contractors, the social housing builders. But a generalised fall in consumer confidence arising from the austerity budget was not expected.

It is, though, what the evidence is pointing towards. Today two different surveys: one on retail sales by the British Retail Consortium and one on house prices by the Royal Institute of Chartered Surveyors point towards a palpable austerity impact.

As the BRC’s Stephen Robertson told me: “Austerity has landed. Talk of public spending cuts is unsettling customers and they are concentrating on essentials.

Big ticket items like flat screen TVs have had a poor July and ‘taken a real battering’.

Retailers are running a record rate of promotional activity, nearly four pounds in every 10 spent in the UK is now on some sort of meal deal, ‘three-for-two’ or other discount. Even the unstoppable boom in online sales has slowed markedly.

‘Year on year people have seven pound less per week, one in five have no money left at the end of the month after essential bills,” says Robertson.

The housing market too is taking a big hit, with sellers pouring on to the market, and buyers battening down the hatches.

As economist Roger Bootle says, the surprising thing is that austerity has hit, even before tax rises and spending cuts have actually bitten.

“It’s possible that when the cuts and tax rises actually hit we will get another downturn in consumer confidence” says Bootle.

All of this so far might be manageable. If it continues, and the natural post bubble personal financial conservatism turns into ultra austerity as Britain’s baby boomers start to retire, then go and have a look at Britain’s busiest shopping junction where Oxford Street meets Regent Street in London.

The council has just fitted a diagonal passenger crossing complete with digital countdown so that shoppers know when to cross. It is directly copied from Japan. And it may be a symbol of things to come for the British economy.

10 reader comments

  1. Moira Pantelon says:

    So the Japanese surprise is?

    1. CharlesJ says:

      The surprise (though not to me) is we’re heading into deflation just like Japan.


  2. Andrew Dundas says:

    [First, to answer Moira’s question: Japan remains in recession for over ten years because its government screwed up an austerity programme and has spooked consumer spending ever since. Japanese save instead – which makes their economy increasingly dire.
    Most commentators observe that was a government induced and persistent recession that could happen here … hence the Japanese surprise. Our economy is now contracting as predicted].
    When in opposition, it’s traditional to rubbish our national economic performance. Even though it was doing comparatively better because of the stimuli.
    In government, it’s expected that commentary will be positive.
    So when a new government gets in and claims that ‘it’s far worse than we knew and dreadful cuts are absolutely necessary’, then consumer confidence falls and spending dives. With the dreadful consequences Faisal’s reporting.
    What would be useful would be for both Cameron and Osborne to go on holiday for a couple of months and somewhere where we can’t hear from them.
    That absence would bring calm to UK confidence and would be worth a great deal. [It would also reduce the other tensions between the UK and our allies].

  3. who is john galt? says:

    Faisal…Channel 4…. please stop dumbing down your economics journalism. Your coverage is like picking up the Sun and it’s painful to watch.

    Is it any surprise about what is happening? Really? The Government has been very clear about what to expect so why make mountains out of molehills?

    Austerity is GOOD when you have debts as big as ours. There is no alternative people!!!!

  4. GS says:

    Last month the Daily Mail reported that ‘nearly half’ of homeowners have no cash left for food and utility bills after paying their monthly mortgage:


    Is this an exaggeration or true? If true then what happens when the credit card is maxed out or there is a slight rise in interest rates?

  5. Chris Horner says:

    Japanese ‘surprise’: a flat economy, crushed under a stupid austerity programme. Looks like Labour called it right, this time.

  6. Richard says:

    It wasn’t expected? Are you sure this isn’t what darling predicted and was mocked for it?

  7. CharlesJ says:

    As I suspected, the UK has not been running a structural deficit at all – it’s been running a structural surplus! This is surely the proof. We need more government spending, not less.

  8. Zed says:

    It seems that the financial problem we are living with is gonna be persistent and long term runing. There are a multitute of variables involved in the recovery of the economy. These include inflation, interest rate, tax rates on employers and employees and also the feel good factor and trust of the population towards policy makers….The money has gone and to regenerate it will take a long time….instead of going tight on all public expenditures, we need to bring in new ideas in industry and in the management of the public sectors to recover the economy. This is like runing a company which has gone into difficulty in the past. In order to bring it back to business, the worst thing you do is to employ a mean director to run it. Usually those type of guys fear new ideas since they see them as high risk taking investment..only those Directors who do not fear new ideas will turn the economy of the company into profitability. Those mean Directors will certainly tighten the belt and clear the balance sheet for the first year, so that it looks good but never manage growth then on since they have no new ideas for business in their heads, let alone a long term vision of the business.

  9. Househunter says:

    Andrew Dundas seems to be indicating that getting rid of the realists and allowing the nation to “carry on as usual” as if nothing was wrong would actually be the best solution.

    I don’t agree. We have been drifting along with total indifference to our financial plight for far too long. It is time those with responsibility for managing this situation stepped up to the mark and did what is needed, on our behalf. For those who would like to carry on in blissful ignorance of the real situation and prefer not to pay any attention to reality, then let them switch off the loudspeaker on their TV. For the rest of us the voice of reason and reality comes as a refreshing change from the garbage we have been fed by the previous lot who dropped us in this quagmire of escalating public debt in the first place and who refused to take any of the blame for it.

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