Clarke's forecasts in consumers' hands

There was something for both the optimists and the pessimists in the national accounts for the third quarter - but on balance the pessimists had the stronger case.

We already knew that the dismally low growth of 0.4 per cent would have melted away to virtually nothing without an increase in stockbuilding. Now we know that the economy would have fallen back if consumers had not dipped into their savings in a big way to finance expenditure.

If consumers are willing to run lower savings from now on, the outlook for 1996 could be as rosy as the Chancellor maintains. Helped by tax cuts, real personal disposable incomes are expected to rise by 2.75 per cent next year. This translates into a rise in consumer expenditure of 3.5 per cent because the Treasury assumes that the savings ratio will fall in 1996 to the level it has already reached in the third quarter of 1995.

However, in its forecast for the economy published earlier this week, the OECD predicted a much more sedate 2.3 per cent increase for consumer spending, largely because it is sceptical about a sustained fall in the savings ratio. Against a background of chronic job insecurity and high indebtedness, the OECD's view of what will happen to the savings ratio seems more plausible. All the more so, since the next few months are likely to see particular weakness in the economy as companies run down excess stocks. A sign that the long-awaited inventory adjustment was under way came in the fall in imports in November in trade with countries outside the European Union. Consumers may bail out the Chancellor's rosy forecast for the economy in 1996. But the balance of probabilities at this stage is that they won't.