Gordon Brown's battered government was yesterday given the first glimmer of hope that the economy will stage a pre-election recovery as consumer confidence posted its third monthly rise to its highest level in a year.
With cheaper mortgages and tax cuts boosting spending power for those in work, Downing Street's confidence that output will start to rise by the end of 2009 was boosted by the monthly snapshot of public opinion showing voters more upbeat about the state of the economy than at any time since the financial crisis began in August 2007.
Rising consumer confidence was a sign in both the early 1980s and early 1990s that the worst of the recession was over, and after recent poor news on growth, jobs and the housing market the chancellor, Alistair Darling, has been anxious for evidence that the massive stimulus provided to the economy since last autumn's financial meltdown is starting to work.
The Gfk NOP consumer confidence index carried out on behalf of the European commission rose three points this month to -27 points, and while still low by historic standards has posted a 10-point improvement since January. The big change over the past month was the public's view of the overall state of the economy, which rose from -31 to -15, but voters were also less gloomy about the state of their own personal finances, where the reading rose from -6 to -3.
America's central bank, the Federal Reserve, last night added to the mood of cautious optimism that the worst recession of the postwar era may be past its nadir when it said conditions had "improved modestly" over the past month. Despite figures showing that the US economy contracted at an annual rate of more than 6% in the first quarter, the Fed predicted "a gradual resumption of sustainable economic growth".
Darling warned in last week's budget that the British economy would shrink by 3.5% this year, but added that the cut in interest rates from 5% to 0.5%, lower oil prices, increased borrowing to fund public spending and tax cuts, and direct money creation by the Bank of England would lead to a pick-up in activity by the end of 2009. The Treasury's forecasts were almost immediately called into question by a sharper than expected drop of 1.9% in gross domestic product in the first three months of 2009.
Rachael Joy, of Gfk NOP, said: "Significantly, this is now the third consecutive month that we have seen a rise in the index - suggesting a definite upward trend - and it's largely driven by the public's perception that the next 12 months will be better for both our own personal finances and particularly for the economy in general. This could be down to a combination of the simple belief that things are improving, as well as the feelgood factor of improving weather following the Easter bank holiday."
The poll was carried out before last week's budget, which forecast that the weakest year of growth in the UK since 1945 would send the state's deficit to £175bn. Joy said it would be "interesting" to see whether the next survey was affected by Darling's statement last week.
The consumer confidence figures came as the chancellor issued a robust defence of the 50p top tax rate announced in the budget.
Some Labour big-hitters have been horrified at the move, which they see as a lurch to the left. But in a speech to the Institute of Directors' annual conference in London, Darling sought to reassure business leaders that he has not abandoned the aspirational middle classes.
"I want to ensure that people inside this country can aspire to do as well as they can for themselves and their families," he said.
"People want to ensure that if they do a hard day's work, they get a reward for it. Frankly I think it is fair to ask those with the broadest shoulders to shoulder some of the strain." Later, he told MPs on the cross-party Treasury select committee that he had been reluctant to impose the new tax rate, but considered it to be fair.
Data released in Washington revealed that US GDP contracted at an annual rate of 6.1% in the first quarter, marking the end of the worst six-month period for the economy in more than half a century.
However, Wall Street investors found glimmers of optimism in the apparently grim news, and the Dow Jones index of leading shares was up by more than 2%. The gains were extended after the Fed's statement at the end of a meeting where it left interest rates at 0-0.25%.
Gabriel Stein, of the London-based consultancy Lombard Street Research, said it was encouraging that spending by American consumers had held up well despite rapidly rising unemployment. In addition, businesses had run down their stocks of unsold goods by more than $100bn, suggesting that they might be ready to crank up production again in the months ahead.
"Weak though the headline number was, the breakdown still supports our view that the US economy will return to growth by mid-2009," he said.
Investors' hopes were also boosted by news that more than a hundred investment firms have put their names forward to take part in Barack Obama's public-private partnership scheme for buying so-called toxic assets from America's embattled banks.
Copyright Speakers Corner 2016