Recovery in confidence tails off

A tale of two economies: Industry makes gains overseas but the consumer sector stays depressed

DIANE COYLE

Economics Correspondent

Consumer confidence has fallen this month. Confidence levels are no higher now than they were at the start of the economic recovery, according to the latest Gallup poll of British consumers.

A gloomier view of general economic prospects this month outweighed a slightly less grim opinion about future household finances in the survey, conducted in the first two weeks of June for the European Commission. ''Confidence recovered a bit as we came out of recession but then tapered off. It has remained well below normal,'' said James Barty, UK economist at merchant bank Morgan Grenfell. Economist David Hillier at NatWest markets said higher mortgage rates and tax increases were taking their toll on consumers.

The main reason for the fall in Gallup's general confidence index was a sharp drop in respondents' assessment of the economic situation in the past year. The balance agreeing that the economy had improved fell from minus 36 to minus 43 per cent. The balance thinking it will improve in the next 12 months fell to minus 18 per cent, compared with minus 4 at the start of this year.

More people also expect unemployment to rise in the next year - 45 per cent, compared to 19 per cent who believe it will fall. The fact that unemployment has declined for 21 months in succession has evidently done little to create optimism about jobs. The Gallup survey, the most comprehensive confidence survey in Britain, provides a rough guide to trends in consumer spending. It has not indicated a positive assessment of economic prospects since September 1993.