Consumer confidence will be boosted by this budget, and consumer confidence drives consumers spending in the short run. There are other consumer spending stimulants:
- a reduction in VAT from January (which most expected)
- a reduction in excise duties on alcohol (which fewer expected)
- no increase in income tax rates (most expected an increase)
- our very own 'cash for clunkers' deal on cars (which rather fewer will benefit from)
But the recession isn't over yet. Unemployment and business failures are 'lagging indicators' of the state of the economy: so I expect both to worsen even as other indicators (including consumer confidence) start to improve. I expect to see a peak in business failures (especially retail) and unemployment in Q1 (possibly a sharp one); some levelling off in Q2; with the potential for real economic growth setting in in the second half of the year (including consumer spending).
Remember, most consumers don't have debts, and most employees (87%+) will keep their jobs. There is a lot of pent up replacement demand out there (cars especially), and deflation means a lot more bargains to tempt those with money to spend. Indeed, recovery might come sooner if exports improve more quickly on the back of an international recovery now underway; and employers move quickly back into hiring mode. After yesterday I think there's a 60-70% chance Brian Lenihan's bullish prognosis that the worst is over and recovery will gain traction next year is right.
The odds on a June 2010 General Election have just gotten shorter.