As we enter the final few weeks of December the consensus has begun to shift, the UK is now in recovery. Current estimates place Q4 as matching the growth seen in Q3 (0.8%) and whilst 4 quarters of growth is not unique in the post 2008 economy (see 2010) it’s the coupling of this data with other indicators that are shows a brightening economy.
All three of the Purchasing Managers Surveys (services, manufacturing and construction) are at record or near record levels suggesting that “industry” as a whole is beginning to pick up. As mentioned last month, this seems to be a response to increased consumer consumption vs. underlying increases in structural improvements. This consumer led recovery (vs structural) is reflected in the large gap between imports and exports.
In news closer to the consumer, listening to the media (and the Chancellor) you would be mistaken for assuming that suddenly everyone had received inflation busting wage increases but the data shows the opposite. The gap between wages and inflation is still growing and moving in the same direction; people don’t actually have more money, but they do think more positively about the future.
The ASDA income tracker shows that currently disposable income is flat however compare this to the current level of positivity about the state of the UKs economic future and the discrepancy becomes clear. Analysis shows that confidence is high but controversially this is not filtering through to an individual’s view of their personal economic future. It could be argued that the “remoteness” of the national stats and the impact of media noise means that individuals are able to view the country positively but because of the daily realities of the economic situation there is a degree of cognitive dissonance. How can the overall economy be getting better when individually people feel no better about their own circumstances?
Is there an opportunity for brands? Is now the time to purchase? The attitude towards spending on large purchases is on the up but is still be hampered by individuals’ financial circumstances. It looks as though that for opportunistic brands the short term is positive however it’s the long term where there are some serious question marks.
The media is trumpeting the recovery, and consistent growth this year with historic levels in the underlying indicators (PMIs) suggest that the economy is beginning to recover, and may even recover the 2008 capacity levels next year! This has been reflected in attitudes to the UK economy in general. However concern still remains that this is an unsustainable position as it is based on confidence and consumer spending. The reliance on consumers for growth is dangerous as the data suggests confidence is currently not backed up by a strengthening financial position. As such, for brands there exists both opportuntities in the short term and risk in the long term.
To download full report, click here: A Vizeum View on the Economy – December 2013
Sources: Markit, ASDA, GFK NOP, ONS, BBC, Timetric