Friday, 28 January 2011

Consumer confidence collapsing

The confidence of UK consumers in the economy and their finances has suffered its biggest monthly drop in 16 years.

Rising VAT was a key factor behind the "astonishing" confidence fall, the GfK NOP Social Research report said.  The UK faced a "very painful period", it added.  More government austerity measures and the surprise contraction in the economy meant talk of a double dip recession was "unavoidable", the study said.

According to the GfK NOP Social Research report the eight-point fall in a key measure of consumer confidence between December and January, to minus 29, was the biggest monthly drop since the end of 1994. Meanwhile, the index representing people's expectations of their financial situation over the next year slid to minus 12, down from plus 4 a year ago.

And the score for expectations for the economy over the next year was minus 30, compared with minus two a year ago. Earlier this week official figures showed that UK GDP shrank by 0.5% in the final three months of 2010 - with the Government blaming the poor weather for most of the fall.

And last week, the Office for National Statistics said that the rate of CPI inflation had risen by more than expected to 3.8%. Meanwhile at the beginning of this month - the standard rate of VAT increased from 17.5% to 20%.

"The VAT increase is the first of the government's austerity measures that has had a widespread impact on consumers, and it seems to have hit people's economic confidence hard, especially as the biggest drop was in consumers' appetite for major purchases," said GfK's managing director Nick Moon.

"With inflation on the up and the full force of the cuts yet to hit, these figures could be the beginning of a very painful period."

indeed ... but not for all ... e.g. take a look at my last post.