Driving the Economy

It may be property prices that drive the UK economy but one of the most reliable indicators of British economic confidence has always been the level of car sales. It seems that UK consumers immediately shelve their plans to buy a new car whenever the outlook seems less than rosy and can't wait to start driving new wheels when things start to look up.

Recognising this phenomenon makes last week's announcement from the Business Secretary, Vince Cable, that the government will no longer be providing financial support to the car industry seem especially inauspicious. This comes after the end of the car scrappage scheme which did so much to sustain the car industry in its darkest hour.

Yet that confidence sometimes takes on a life of its own as it did last month when, according to the Society of Motor Manufacturers and Traders, car sales were significantly higher than in June 2009 even without the scrappage subsidy. No doubt a number of different factors affected car sales in June but the overall picture must be one of increasing rather than declining confidence.

Does the effect work the other way, we wonder? If we buy more cars do we then admire our fancy new motor whilst thinking that things must be on the up? Perhaps we do, in which case we can expect even more buoyant consumer figures to come, at least until VAT rises next January.