British consumer morale jumped in May to its highest level this year and house prices nudged up, providing glimmers of hope for an economy struggling to get out of the doldrums, but analysts warned against reading too much into the figures.
Bank of England arch-dove Adam Posen also said today that public spending cuts and below-inflation wage rises meant stiff headwinds to recovery lay ahead.
The rise in the consumer confidence index, to -21 from April's -31, was the biggest since May 1993 and the second biggest since GfK NOP began the survey in 1974, but still left the index below where it was at the same time last year.
"Even after this latest bounce, confidence is still at a level that points to a further fall in consumer spending," said Vicky Redwood at Capital Economics.
The boost to morale was also helped by unusually warm spring weather and an extra public holiday to celebrate the Royal Wedding.
These factors may simply have encouraged Britons to bring forward spending on clothes and holidays that they would have made later, meaning retailers could suffer later in the year.
John Lewis, Britain's biggest department store chain, said sales at its stores were 5.3 per cent higher last week than a year ago, though sales in the weeks before have been disappointing.
Concern about weak consumer demand has been a key reason why the BoE has kept interest rates at a record low for the past two years, despite inflation soaring to 4.5 per cent - more than double its 2 per cent target.
Data earlier this week showed British household spending fell in the first quarter at its sharpest pace since the recession. With wages rising typically at half the rate of inflation and more job losses expected, consumer spending will not be able to drive Britain's economy in the way it used to.
Tight household budgets have also contributed to a stagnant housing market.
Figures from mortgage lender Nationwide today showed house prices rose 0.3 per cent in May after a drop of 0.2 per cent in April, but remained 1.2 per cent below their level a year ago.
Nationwide said sideways price action was the most likely trajectory for the remainder of the year.
"Overall, the modest pace of house price growth in May suggests that the property market is continuing to mirror the lacklustre trends evident in the wider economy," said Robert Gardner, Nationwide chief economist.
Britain's economy has essentially stagnated since last September, with output contracting by 0.5 per cent in the fourth quarter of 2010 and rising by 0.5 percent in the first three months of this year.
Money markets show investors are not fully pricing in a rate rise from the BoE until the start of next year.
Reuters
