Household confidence in the UK rose at the fastest pace in almost two years in April as global equity markets showed strong recovery and the country's housing market displayed some tentative signs of improvement, Nationwide Building Society said Wednesday. Elsewhere, the National Institute of Economic and Social Research, or NIESR, said the British economy will contract the most since 1931.
The consumer confidence index rose eight points to 50 in April marking the largest single monthly rise for nearly two years. Economists had expected a slight increase to 43 from March's reading of 42.
In recent weeks, we have seen a strong rebound in global equity markets and some tentative signs of improvement in housing market indicators, both of which may have contributed to the marked upturn in consumer confidence during April, Nationwide's senior economist Martin Gahbauer said.
All the sub-indices of the headline index recorded an increase this month. The expectations index increased 13 points to 70. The Nationwide said a rise on this scale has not been seen since May 2007.
The gauge for present situation, which had been falling since June 2008, recorded slight increase to 21 from the previous month's 20 and the spending index moved only marginally during the month and continued its upward trend to 98 from 97.
The marginal rise in the current situation index suggests that consumers remain concerned about the current economic environment and the labor market.
It is likely that the UK economy will continue to contract for some time yet, so it is too early to say whether this trend in confidence will continue into the next month as consumers continue to digest further industry data and the 2009 Budget, Gahbauer said.
Also on Wednesday, the NIESR said the British economy would shrink 4.3% in 2009, the worst contraction since 1931. However, the economy is expected to grow 0.9% in 2010 given the export recovery. The growth is expected to accelerate to 2.3% in 2011.
The think tank's forecast is bleaker than the government's outlook, which said gross domestic product, or GDP, will fall 3.5% this year, and then grow by 1.25% in 2010. It is also gloomier than a 4.1% fall predicted by the International Monetary Fund. For 2010, the IMF sees a further decline of 0.4%.
The NIESR said in a report that the pace of decline to date shows a remarkable resemblance to that of the depression of the early 1930s. It said the similarity should be broken, as a feeble recovery gets under way in the final quarter of this year.
The Bank of England, which trimmed its bank rate to a record low of 0.5% to counter the economic slump, is expected to hold the rate on Thursday, when its monetary policy committee meets.
The British Retail Consortium reported Wednesday that its shop price index declined 0.5% in April, compared with March. On an annual basis, shop prices increased 1.4%, following 2% rise in the previous month.
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