Consumer confidence slumps as crisis fears grow

By PETER RANSCOMBE
Published on 27/05/2012 00:00

THE pressure on household budgets will be laid bare this week when figures are expected to reveal the UK’s return to recession and the Eurozone crisis have pushed consumer confidence to one of its lowest levels in the past 40 years.

GFK’s consumer confidence index, which is compiled for the European Commission, is expected to have fallen to depths not seen since the lows of the last recession in February 2009.

Such a fall would mean the index has again reached one of its lowest ebbs since the survey began in 1974, during the three-day week.

Howard Archer, chief UK and European economist at forecasting group IHS Global Insight, warned: “The danger is that already low and fragile consumer confidence will have taken a serious hit from the UK being back in recession and from concern over how the UK economy could be affected by events in Greece.”

Striking a more upbeat tone, he predicted that lower petrol prices in May should have softened the overall drop in confidence.

Archer’s predictions come as a report due to be published today by Royal Bank of Scotland shows that stubbornly high inflation is still hampering first-time buyers’ ability to save for a deposit on a home.

It takes about three years for the average UK first-time buyer to save a 10 per cent deposit, according to the quarterly report, although in Scotland the figure was lower at 29 months, down from 31 months during the first-quarter of last year.

High rents – which house-hunters still have to pay while they are trying to save for their first home – in London mean that the figure rises to 51 months for the UK capital.

The desire to save cash and pay down debt is also likely to be highlighted by the Bank of England’s monthly consumer credit report on Wednesday, which is forecast to show only a slim increase in borrowing last month.

“It is very possible increased worries over the outlook resulting from news that the economy is back in recession and from the situation in the Eurozone is intensifying the desire to improve personal finances,” Archer said.

He highlighted that the lack of consumer confidence – and resulting lack of spending – will continue to have a damaging effect on retailers.

“If retail sales haven’t picked up to at least a limited extent in May then it will suggest already-muted underlying consumer spending has softened, which would be worrying news for recovery prospects, given the key role of the consumer,” he added.