A measure that can tell us a lot about the state of the UK economy

The new year signifies a fresh start.

The latest monthly figures on the economy do not confirm a gear change and also do not support the worst doomsayers claiming decline and recession. While the outlook is neither dire nor optimistic, the start of a new year presents a chance for a fresh approach to policy, a renewed sense of assurance, and most importantly, a renewed enthusiasm for the economy.

explain a lot about both states.

There is a chart that can explain a lot about both the state and prospects of the UK economy. And it could also tell a lot about Britain’s political direction.

The subject is consumer confidence. These are long-running surveys that essentially put the country in a state of economic psychiatry. How do you feel about the economy’s prospects? Are you likely to purchase a large appliance? How is your personal financial situation?

The questions asked consistently for five decades have a solid data source—it’s the measurement now called the GfK Consumer Confidence Barometer.

I’ve been reporting on this metric for half the time of its existence. It’s an imperfect science but the basic idea of ​​arriving at a pure confidence number is to subtract the optimism score from the pessimism score.

The patterns were then interesting and consistent. It was important for a prophet to convey this to those in power. “This economy is stupid,” remember.

But has there been any significant change in the water? This chart is quite extraordinary and a version of it has been circulated at the top of the government.

A brief description is in order.

This chart breaks down the headline net confidence numbers by age group.

By and large they moved together; they were “correlated”.

Young people’s starting point is usually sunnier, but as they age, this becomes less so – no big surprise – and people of all ages react to events similarly.

Over the last decade, you’ve seen a correlated decline in consumer confidence across all age groups in response to the post-Brexit voting era and the impact of the pandemic.

We clearly see the impact of the Russia-Ukraine war and the extraordinary rise in energy prices.

An intriguing point is how disastrous the Liz Truss mini-budget in 2022 was for all age groups. This led to a 45-day decline in confidence in both government and economic prospects.

And all those lines will continue to run together until 2024.

But what will happen at the end of 2024? Deviation. big time.

Consumer confidence among those under 50 has soared, and confidence among those under 30 has reached the highest level not seen since Brexit.

But look at the two red lines below. The confidence of consumers over 50 and over 60 is falling towards Truss-era levels.

How can it be that people over 50, and especially pensioners, are going through another decline in economic confidence, and yet the young adult population is far more positive?

Well, the dotted line is the 2024 general elections. And while correlation does not imply causation, this age-related break does occur.

A possible explanation of political economy is this – the flow of causality from the economic sense to the political sense has been reversed.

Where how you felt about your finances affected how you voted, now how you voted affects how you feel about your finances and the country’s economic outlook.

Young people on the liberal left, by and large, are now happier after enduring a series of crises so far this decade and with a government they largely voted for in 2024.

The elderly, who predominantly voted Conservative and Reform, are unhappy and disaffected. He believes that the country has deteriorated even further than usual.

One possible factor is the tone set by social media and the emotional doom-scrolling and anger magnets embedded in their algorithms. Is this demographic seeing a Mad Max-style dystopia presented on their social media feeds and responding with this negative attitude?

There is also some evidence demonstrating political influence on the sense of economic confidence of respondents to a consumer sentiment survey in the US. In the transition between the Donald Trump and Joe Biden administrations in late 2020, Democrat respondents’ economic confidence rose from 67 to 96, while Republicans’ fell from 100 to 59.

The Biden administration then lamented what staffers called “vibesation”—a subsequent feeling of economic malaise not actually reflected in good economic numbers.

This encompasses other economic factors.

This surge in the confidence of the youth came at a time when the Bank of England started cutting interest rates. Rate cuts are good for young home seekers and job seekers but bad for older savers.

Even if this picture is correct, it will have significant economic consequences.

This may help explain the UK’s high and near double-digit savings rate. This looks like a pandemic-style deviation. Old Britain is sitting on its savings, depressed about the country and the economy, refusing to spend its money and shrinking GDP, even though wage growth for workers remains on average higher than the rate of inflation.

The findings from this chart also reflect well in the early financial results we receive from businesses.

Many retail results beat the disappointment. Some of the owners who complain most about the National Insurance increase are the ones basically reporting healthy sales and profits after paying tax.

Pub chain Mitchells & Butlers “traded very strongly over the festive season, with a like-for-like growth of 7.7%.” Fullers had “an excellent five-week Christmas and New Year’s season across all parts of the property,” up 8% on an already strong festive period last year.

Obviously challenges remain in the level of price growth. But a conscious effort by the government to limit regulated price increases for rail and water is keeping inflation below the 2% target.

There will be more rate cuts gradually, and previous cuts will also impact the domestic sector.

The government may initiate a mortgage price war to boost the housing market following months of budget uncertainty.

The government hopes to put an end to the tumultuous year of 2025 by encouraging a surge in investment through recent announcements regarding Heathrow and a new northern train line.

So there is a platform for averting destruction. Could the politically charged perceptions of economic confidence put a halt to all that?