GfK NOP consumer confidence index slumps by a degree only seen six times in 35 years ? most recently during 1992 recession
A poll of UK consumers has revealed an "astonishing collapse" in confidence that fuels fears that Britain is heading for a double-dip recession.
The GfK NOP consumer confidence index dropped eight points this month to -29, with a spectacular drop in the number of people saying they planned to make a major purchase.
The research echoes household finance figures this week from the economic consultancy Markit, which also showed consumers were reluctant to spend while the economic outlook was uncertain. In another sign that confidence is scarce, a poll by Ipsos Mori for yesterday's Evening Standard newspaper found more than half of people surveyed believe the economy will get worse over the next 12 months, compared with 24% who think it will improve.
Nick Moon, of GfK NOP Social Research, said sentiment among consumers was reminiscent of the worst period in the recession of the early 1990s.
He said: "January's eight-point drop represents an astonishing collapse in consumer confidence. In the 35 years since the index began, confidence has only slumped this much on six occasions ? the last being in the midst of the 1992 recession."
The financier George Soros said at the World Economic Forum in Davos on Wednesday that he did not believe the government's severe public spending cuts "can possibly be implemented without pushing the economy into recession".
Fears that Britain's nascent recovery was crumbling were voiced last year after a series of surveys showed the economy slowing. Earlier this week official figures shocked analysts by revealing that the economy contracted by 0.5% in the last quarter of 2010, sending sterling sharply down against the euro. Economists had expected growth of about 0.5%.
Ministers blamed much of the decline on the effects of snow in December. However, many economists said the figures revealed the recovery was still in its infancy and unable to cope with the Treasury's austerity measures.
Separately yesterday, a survey by the CBI of retailers found sales growth slowed in January after the rise in VAT to 20% deterred shoppers.
Shops embarked on heavy discounting to combat the effects of the VAT increase and were able to offset some of the fall in revenues. However, retailers said they expected the next few months to be tough as household finances come under pressure from muted wage growth and the effects of tax rises dampening demand.
The CBI distributive trades survey's reported sales balance fell to +37 in January from +56 in December, which was an eight-and-a-half year high. Analysts had forecast a fall to +35.
The CBI's chief economic adviser, Ian McCafferty, said: "The lure of seasonal sales and price discounting may have helped mitigate some of the impact of the VAT increase on volumes. However, retailers expect the pace of sales growth to slow further next month and orders placed with suppliers have flattened out."
Howard Archer, economist at IHS Global Insight, said the figures reinforced his view that consumer demand would remain muted this year as Britons felt the squeeze from rising inflation, small pay rises and government spending cuts.
"Consumer confidence is low, unemployment is high and likely to rise further, other elements of the fiscal squeeze will increasingly bite as the year progresses, and debt levels are elevated. On top of this, the weakness of the housing market is not good news for consumer spending," he said.
Indeed, the survey showed retailers expected sales growth to slow further in February, with the expected sales balance for February falling to +25. This would be the lowest figure since last July.
McCafferty said: "Consumer demand is expected to be weak in the coming months, as the spending power of households is hit by a combination of sharply rising prices and weak wage growth."
The data highlighted a particularly sharp fall in durable goods, while grocers, clothing and footwear stores recorded the strongest sales growth.
Source: http://www.guardian.co.uk/business/2011/jan/28/uk-consumer-confidence-index-plummets
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