Fresh fears of double dip as consumer confidence vanishes

CONSUMER confidence in the UK has fallen to its lowest level for almost three years, adding further weight to fears that the economy is returning to recession, a new survey has revealed.

The two previous occasions that market research group GfK’s monthly index was as weak – in mid-2008 and early 1990 – recession followed a few months later.

GfK managing director Nick Moon said consumers were increasingly pessimistic about the UK’s general economic situation over the coming year.

“The government can’t rely on people spending their way out of the double-dip recession that is likely to be on the horizon,” he warned.

The survey, which is carried out on behalf of the European Commission, came on the back of other gloomy warnings in recent days over the health of the UK economy.

Bank of England policy- makers Paul Fisher and Martin Weale have both warned that the economy faces a significant risk of contraction in the coming quarters – a danger that lay behind the central bank’s decision to restart its quantitative easing purchases earlier this month.

A number of retailers have also reported mixed results this week, and a CBI survey on Thursday showed stores expected only a modest pick-up in the run-up to Christmas after the worst three months in more than two years.

GfK said its index sank to minus-32 in October from minus-30 in September and compared with the minus-19 figure recorded a year ago.

It was pushed lower by a weakening in consumers’ assessment of the general economy and their willingness to make big purchases, although households’ personal financial situations had not declined from already-low levels.

The index was based on a poll of 2,000 people conducted between 30 September and 9 October.

Meanwhile another survey into UK consumers’ financial confidence, carried out on behalf of Dundee-based savings group Alliance Trust, suffered its largest decline on record in the third quarter of the year.

The UK Financial Reality Index fell from 79.6 to 56.7, the lowest level since the end of 2008, and blamed on weaker GDP growth, stock market losses and a continued erosion of household spending power.

Linsey Thomson, senior economic analyst at the Alliance Trust research centre, said: “The record decline in our index in Q3 highlights just how tough conditions facing households are. During the quarter, the decline in the net wealth index was particularly marked, mainly as a result of the large stock market losses.”

The report found that higher inflation was continuing to lead to a loss of real spending power.

“On top of this, economic activity has slowed and we have seen a rise in the unemployment rate which makes conditions even tougher,” added Thomson.

“The combination of these factors suggests that consumer spending will slow further in the coming months.”