British consumer confidence plunges to new lows

There appears to be no sunshine at the end of a dreary winter in Britain. Consumer confidence in the UK plunged to a record low in February, even as the economy shrinks and inflation soars.

The Nationwide Consumer Confidence index, brought out by the Nationwide Building Society (NBS), the UK's third-largest mortgage and savings provider, fell to 38 - a 10-point dip over the index for January - and the lowest since the survey began in 2004.

The fall was driven by a sharp deterioration in the 'expectations index' - the gauge that shows consumers' assessment of the economic and employment situation in six months' time. The survey that indicated growing pessimism towards spending forced the 'spending index' down to 52 points in February - its lowest level since the survey began.

"Consumer confidence continued to deteriorate in February and has now reached its lowest level in the survey's history, superseding the previous low seen during the recession," said Robert Gardner, Nationwide's chief economist. "A fall in expectations towards the future was the main factor driving the Index down, and consumers' assessments of the present situation deteriorated slightly from already depressed levels."

According to Gardner, there are many factors that may be holding back confidence at the moment. "The labour market remains fragile, with the unemployment rate still high and wage growth weak. Inflation is showing few signs of easing, and high fuel prices and the VAT increase have further eroded disposable incomes in recent months."

The UK's economic recovery remains sluggish and there was little positive news in February to give consumers a much-needed boost. The economy shrank in the final quarter of 2010 and inflation has doubled from the Bank of England's target of two per cent.

British consumers also expect the value of their homes to decrease by 1.1 per cent over the next six months, the same rate of decline they predicted in January.

The NBS survey concludes that while it expects the recovery to get back on track in the quarters ahead, it may take a while for consumers to feel the benefits. "Business investment and exports are expected to play the major role in driving the recovery but it will take time for this to feed through into stronger employment and wage growth," it adds. "In the meantime, it would not be surprising to see confidence remain at a low level."