* One-off factors spur biggest rise in confidence since 1993
* House prices nudge higher but market still subdued
* Fiscal pain, high inflation to weigh on consumer demand
(Adds John Lewis figures, BoE's Posen, analyst comment)
By Christina Fincher
LONDON, May 27 British consumer morale jumped in
May to its highest level this year and house prices nudged up,
providing glimmers of hope for an economy struggling to get out
of the doldrums, but analysts warned against reading too much
into the figures.
Bank of England arch-dove Adam Posen also said on Friday
that public spending cuts and below-inflation wage rises meant
stiff headwinds to recovery lay ahead. [ID:nN26267589]
The rise in the consumer confidence index, to -21 from
April's -31, was the biggest since May 1993 and the second
biggest since GfK NOP began the survey in 1974, but still left
the index below where it was at the same time last year.
"Even after this latest bounce, confidence is still at a
level that points to a further fall in consumer spending," said
Vicky Redwood at Capital Economics.
The boost to morale was also helped by unusually warm spring
weather and an extra public holiday to celebrate the Royal
These factors may simply have encouraged Britons to bring
forward spending on clothes and holidays that they would have
made later, meaning retailers could suffer later in the year.
John Lewis, Britain's biggest department store chain, said
sales at its stores were 5.3 percent higher last week than a
year ago, though sales in the weeks before have been
Concern about weak consumer demand has been a key reason why
the BoE has kept interest rates at a record low for the past two
years, despite inflation soaring to 4.5 percent -- more than
double its 2 percent target.
Data earlier this week showed British household spending
fell in the first quarter at its sharpest pace since the
recession. With wages rising typically at half the rate of
inflation and more job losses expected, consumer spending will
not be able to drive Britain's economy in the way it used to.
Tight household budgets have also contributed to a stagnant
Figures from mortgage lender Nationwide on Friday showed
house prices rose 0.3 percent in May after a drop of 0.2 percent
in April, but remained 1.2 percent below their level a year ago.
Nationwide said sideways price action was the most likely
trajectory for the remainder of the year.
"Overall, the modest pace of house price growth in May
suggests that the property market is continuing to mirror the
lacklustre trends evident in the wider economy," said Robert
Gardner, Nationwide chief economist.
Britain's economy has essentially stagnated since last
September, with output contracting by 0.5 percent in the fourth
quarter of 2010 and rising by 0.5 percent in the first three
months of this year.
Money markets show investors are not fully pricing in a rate
rise from the BoE until the start of next year BOEWATCH.
(Additional reporting by Matt Falloon; Editing by Hugh Lawson)