London Calling

JOHN GILBERT asks if the summer of discontent can be lifted by the public embrace of the London Olympic Games.
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‘Counting on the Queen to boost our spirits’  was the headline for the Consumer Confidence feature which appeared in the Spring 2012 issue of Argent.
Despite poor weather, the Diamond Jubilee weekend of celebrations was a big boost to national spirits, and will no doubt have raised the June consumer confidence measure.
As well as celebrating the Diamond Jubilee, millions of people have cheered on Olympic torchbearers. Such enthusiasm is likely to boost the summer Olympics Barometer measure of national togetherness and happiness to above the 46% in the spring survey.  Sharing such unique national events at times of austerity will help in bridging and confronting very troubled waters.
The power of sport is a major theme this summer as the state of the economy requires Olympian efforts to generate the growth and jobs to reboot the nation’s spirit of enterprise.  The economic and political climate could hardly be worse. The UK economy has slipped back into a double dip recession. While economists are expecting a financial boost from the impact of the Olympics, the public are less convinced – indeed, almost a third of adults (up from 24% in December and 30% a year ago)  .
Across the English Channel, like a newly constructed motorway that suddenly runs out of money and hangs unfinished, the euro project appears to be on a road to nowhere.  Enormous costs are being expended on already highly indebted countries.
While consumer confidence in Greece (-76) and Portugal (-52) has changed relatively little in the past year, confidence  in other euro-area countries has fallen sharply. In the euro-area, sentiment dropped from -10 to -19, in Spain from -12 to -33, in Italy from -24 to -39 and in the Netherlands, from 3 to -24.
Both in France and Greece, following recent elections, confidence has picked up. In the former, sentiment improved from -20 in April to -16 in May (a year ago -17), while in Greece confidence is up  from -84 in January to -76 in May as hopes of a change away from austerity policies grew. The new coalition government in Greece will, in the short-term at least, increase uncertainty in Europe with an impact on UK confidence.
A year ago, May consumer confidence was boosted by the Royal Wedding that saw a surge in both the GfK and Nationwide measures. Consumer optimism had returned, and but for last summer’s eurozone crisis, and a very gloomy media-inducing pessimism, the UK economy may well have started to move more along the growth projections expected, with more jobs created and greater income growth.
This year, the combination of a number of factors has resulted in the economy falling back into a double-dip recession. Rising unemployment and inflation, together with weak income growth, have pushed confidence to recession levels. The steeper fall in the Nationwide CCI last autumn to a new record low reflects its greater emphasis on jobs.
The latest GfK survey for May  shows confidence up by 2 points to -29, the highest score since February, on the back of a big jump in optimism about future household finances and the economic situation. This optimism is likely to extend into the June figures in the wake of the Jubilee celebrations and may extend through the summer with the Olympics. Other positive developments are an improvement in the JGFR Misery Index , 6 points better on the month at 112 and 4 points better than a year ago with both inflation and unemployment expectations improving.
Both GfK spending and saving confidence remain very depressed with the former at its weakest since last October and the latter in April at its lowest since February 2009. The GfK spending measure (covering household goods) is reflected in very tough trading conditions that are unlikely to improve in the near term.
While events are providing some escape, the financial situation of households has deteriorated. The May GfK household financial position  measure was at its lowest since the mid-1990s when households were struggling with high mortgage rates, negative equity and only slowing improving job prospects. A sharp rise in the number of struggling better- off households may be the result of recent mortgage rate rises – and could exacerbate any consumer recovery.  For the nineteenth successive month there was a negative net balance of people expecting their household income to rise in the April Nationwide survey. The JGFR Financial Well-being Index  slumped to its lowest three-monthly measure (92), and highlights the challenges facing policymakers with consumer demand in many areas extremely weak.
In part, the weakness of demand is due to consumers prioritising saving and repaying debt, rather than spending, although a lack of lending appetite by financial institutions has also contributed as their funding costs have risen and they have been shrinking lending books.
For financial services providers, the outlook in Q2 and Q3 for business volumes is poor, particularly for credit products. The Spring JGFR Financial Activity Barometer  (see Chart 2) is little changed (85.3) from its decade low last December, although savings and investment intentions moved higher following recent weakness. The JGFR Borrowing Activity Index fell to a further record low (50.0, down 8 points on December) with both consumer credit and mortgage indices touching new lows.
The JGFR Savings & Investment Index gained 1 point to 87.3 (95.1 Q1Q2 2011) with a revival of demand for cash deposits to the highest level (34% of adults) since June 2010 suggesting that with weak lending demand deposit rates may fall. Demand for ISAs (32% of adults) also picked up strongly after a very weak December figure (27%), although is well down on a year ago (36%).
Prospects for longer term investments also improved, no doubt boosted by more settled and rising markets in Q1. Investor confidence is higher with more people (13%) intending to invest in equities and corporate bonds following the record low of December (10%). For life and pension providers, the outlook improved considerably on December, with 36% of adults intending to contribute to a life and/or pension scheme compared to 32% in December and unchanged on a year ago. There was a big jump in intended lump sum contributions possibly in anticipation of Budget changes to pension tax relief.
In the housing market, changes are underway with more people living in outright homes and fewer in rented homes. This may reflect the tough financial squeeze forcing more siblings to return to the parental home. Despite the gloomy economic position, prospects for the housing market showed a quarter-on-quarter improvement. The JGFR Housing Market Confidence Index jumped 10 points from its survey low of 43.9 last December. A big factor pushing the overall index higher is the strong recovery in housing market confidence in London. Here property purchase intentions surged to their highest since September 2010.
With the UK banking market in the throes of legislative upheaval and structural change as new entrants to the market emerge, the latest UK Banking Barometer  shows new challenger banks are making headway for the first time in the ten years of the Banking Barometer.
Customers appear to be more willing to change banks with many being forced to consider their situation as bank branch ownership is being transferred and under discussion. Extensive advertising for current accounts is a reflection of the re-structuring of retail banking as banks seek to develop relationships that generate rising revenues over time.
Among the public, 90% have a designated main financial services provider, of which 86% (89%, March 2011) cite one of the ten leading bank brands (including Nationwide). There is also a reduction in the share of the Top 5 brands, down from 65% to 61%.
Lloyds TSB regained leading MFSP position on the quarter from Barclays, while the Co-operative Bank rose to its highest ever ranking (8th).  HSBC, along with Royal Bank of Scotland has the most active and financially strongest customer base and will be boosted by the announcement of the introduction of M&S Money current accounts using 50 Marks & Spencer branches over the next 2 years.  Tesco bank and Virgin Money, both with high profile offerings in financial services have made little impression as MFSPs to date. The Post Office, with plans to introduce a current account next year is better placed with just under a 1% market share.
The Banking Barometer also found that nearly a half of adults continue to use a branch (in the majority of cases along with other distribution channels), but with a surprisingly large number (29% v 18% a year ago) using a named financial adviser. Such an increase may reflect the rise in people using the internet for research and following this up with a named relationship manager or financial adviser for reassurance. It may also reflect a shift back to people wanting a more personal bank relationship again.
For marketers, regional differences in confidence and activity have a big impact on business flows. Some regions are notably stronger than others in savers, investors or borrowers.
In the next two months, London will continue the high international profile kicked off by the Jubilee celebrations. In April, Londoners confidence dived (falling from -25 to -31) but rebounded strongly (up 9 points to -22 in May – a Boris Bounce? – along with the South East (up 6 points to -23).  Elsewhere confidence was weaker – in the Midlands (-29), Scotland (-30), Wales (-34) and Northern Ireland (-37)
In London and the South East, the Olympics may be having a greater impact – in the Spring Olympics Barometer  more people in the South East (40%) and Londoners (37%) believed that the Olympics would boost the economy.
The other factor that all parts of the country are experiencing is unseasonal weather.  Many businesses will have been affected by the dampening effect this can have on sales and on sentiment. Words used to describe the economic and weather outlook are becoming interchangeable.  As this article is being prepared, the black storm clouds hanging over Europe are mirrored by a severe storm approaching the UK. At the same time the Chancellor and Governor of the Bank of England announced plans to shore up the banks with at least a £100 billion lifeline to boost lending and help the sector protect itself against a Greek exit from the euro.
Indeed the depressing weather is one thing Olympics organisers have little control over. Meteorological records show the last year when the weather pattern was similar to 2012 was in 1944 when the D-day landings were almost aborted because of unusual storms and the weather for the summer was cool, wet and unsettled. A check back over Met Office records for Heathrow Airport as a proxy for London shows that in the past decade, the rainfall in August has progressively increased while hours of sunshine have decreased. The motto for all attending the Olympics will be ‘Be Prepared’. In the last London Olympics of 1948, the Opening ceremony took place on a sweltering day – 27 July – with many people fainting- only to be followed by a fortnight of mainly miserable and cold weather.