Now, in the New Year, reality has bitten again as concerns about jobs, wages and household costs reassert themselves. Despite consumer confidence improving in January, actual spending shows households concentrating on paying off debt, saving and battening down for another tough year.
Retail sales were down 0.3% on a like-for-like basis in January, the British Retail Consortium (BRC) said, the second worst January since the survey started 17 years ago. The figure compared with last January when sales had risen 2.3%.
The figures contrasted with more positive business data last month showing manufacturing and services firms were beginning to be more optimistic about their prospects.
Fears of rising unemployment and the uncertain economic outlook encouraged shoppers to cut back on luxury foods and repay debts instead.
The beleaguered state of the UK economy has been underlined by three separate reports revealing that Britain's small and medium-sized businesses were facing their most difficult year since the recession of 2009. Most do not have the fortitude to continue to survive.
Sharp declines in bank lending to smaller firms, and a collapse in confidence across the sector outlined in the reports will added to concerns that the economy is about to enter a second recession in three years, analysts said.
The dismal reports will also put pressure on the Bank of England to pump an extra £50bn into the economy when it meets on this week. Mervyn King, governor of the Bank of England, has said he could support an extra boost to the £270bn quantitative easing program if there were evidence of a further tightening in bank lending and a deterioration in the economic outlook.
The European Central Bank has also faced calls to ease monetary policy to offset cuts in public spending and rising unemployment across the eurozone. The bank, which has allowed European banks to borrow £500bn since the start of the year in response to the deepening euro crisis, could cut interest rates further to ease borrowing costs, analysts said.
Most economists expect the Bank of England to sanction further quantitative easing despite positive figures from the services and manufacturing sectors last week that showed a steady expansion over December and January.
Bank lending is considered a crucial measure of economic health and a fall this year could cripple many businesses that have struggled to keep their doors open since the recession.
The Brits and the Bank of England
The Brits and the Bank of England
George Osborne is understood to favour a boost to quantitative easing by the Bank of England to offset his austerity measures.
He came under fire last week from opposition MPs for sticking to his plans after the Institute for Fiscal Studies said he could spend at least an extra £10bn without undermining confidence in the UK's fiscal outlook.
Unlike Greece and Ireland who are stuck in monetary union, the UK coalition government voluntarily decided to run the experiment to see if there is such a thing as an expansionary fiscal contraction. Now, they have found out that there isn't.
The UK cut public spending and fired public-sector workers; over the last year for which we have data, public-sector employment fell by 276,000, while private-sector employment grew by 262,000, giving a net decline of 14,000. There has been no private-sector resurgence and a expansionary fiscal contraction has turned out, in fact, to be contractionary.
Next week, the Bank of England will do more quantitative easing to make up for the fact that cutting public spending doesn't work in a slump. A lesson that is being learned around the world.
EUR/GBP Pivot Points (Time Frame: 1 Day)
Name S3 S2 S1 Pivot R1 R2 R3