The causes of a stuttering recovery can be all too easily traced
It began as a trickle of companies warning that government spending restraint might damage their trading but it is fast becoming a torrent.
And that TUI Travel is the latest big business to warn that its profits are likely to disappoint as a result of austerity measures is real cause for concern. This is one of the biggest players in an industry that has always insisted it is relatively resilient in tough times, because consumers are reluctant to cancel holiday plans in all but the most straitened of circumstances.
Instinctively, you would expect people to cut back on holidays during a recession. This is discretionary spending rather than necessity, after all. During the downturn, however, the extent to which the sales of companies such as TUI held up was remarkable. Holidays really do seem to be at the bottom of the list of big-ticket items that consumers are prepared to forego when the purse strings tighten.
We should, therefore, be disturbed by what TUI had to say yesterday. Though it blamed some of its woes on the Icelandic volcano debacle, there was a bounce-back following that episode. But that has not endured.
To understand why, look no further than the Nationwide consumer confidence index, which the building society publishes today. It reveals that for the third month running, confidence has dropped sharply, with sentiment now running at levels not seen since May last year.
That's hardly a surprise. Staff in the public sector have been told their positions may not survive government cutbacks. In other words, between five and six million people — around a fifth of the total UK workforce — now fear for their jobs. Those who remain in work can expect higher taxes and limited pay rises — as can their colleagues in the private sector — at a time when inflation continues to surprise on the upside.
This is the reality of the emergency Budget. It is no coincidence that Britain's recovery began to stutter more noticeably in the weeks following George Osborne's explanation of how he intends to begin tackling the deficit more aggressively than his predecessors had planned.
These are early days, of course — and we still have Mr Osborne's spending review to look forward to — but the signs so far are that in the debate over whether the austerity programme would do more harm than good, the fears of those arguing for less aggressive cuts are looking well-founded.
n IT is in this context that Mervyn King, the Governor of the Bank of England, presents his quarterly Inflation Report today. He faces a difficult balancing act. On the one hand, Mr King will be acutely aware of the nervousness about the prospects for growth. On the other, he runs an institution that is mandated to hit an inflation target of 2%, but which hasn't yet managed to bring the rate below 3% this year.