Confidence remains high

The Economic Tendency Indicator continues to point to a buoyant mood among both firms and consumers. Despite falling from 113.7 in December to 112.0 in January, it remains well above the historical average. All of the business sector indicators other than that for the retail trade are above, or well above, normal levels. Consumer sentiment improved somewhat in January, but this related mainly to personal finances.

Firms in all sectors have seen an increase in employee numbers in recent months, but a high proportion are still reporting labour shortages. Recruitment plans are as optimistic as before and signal strong employment growth in the private sector.

Prices are reported to have increased overall in the past three months, and firms’ overall view of their profitability has improved since October. A higher proportion of firms now plan to raise their prices in the next three months.

The confidence indicator for the manufacturing industry fell back slightly after the big jump in December but still points to a very strong situation. Firms report good growth in orders and production in recent months and are relatively happy with their order books. Production plans for the next three months are also still very optimistic.

The confidence indicator for the building and civil engineering industry climbed back above the 110 mark, pointing to a much stronger situation than normal. Firms are happy with their order books, and expectations for both orders and activity levels over the next three months remain very optimistic.

The confidence indicator for the retail trade fell for a third month to just below the historical average. This low level is due mainly to more downbeat specialist retailers.

The share of firms in the service sector that consider labour shortages the main factor currently limiting their activity has increased for three successive quarters to its highest level since early 2003.

Indicators

Note. The standardisation of the Economic Tendency Indicator means that it cannot be calculated as a weighted mean of the levels of the sector confidence indicators.

The indicators are revised each month when the time series are seasonally adjusted. The values will often then move slightly up or down.

The situation is: ++ very strong, + strong, = normal, - weak, -- very weak.

The confidence indicator for the total industry is obtained by weighting the confidence indicators for building and civil engineering, manufacturing, the retail trade and the private service sector on the basis of the number of employees in the population. These weights are different to those used in the calculation of the Economic Tendency Indicator.

The confidence indicator for the private service sector has been estimated for January 1996 to November 2001 on the basis of quarterly series for a limited number of service industries.

Household expectations on inflation and interest rate