Consumer confidence plunges to 20-year low

Consumer confidence took its biggest knock for nearly 20 years after the VAT hike earlier this month, leading to warnings that the UK economy could be facing "a very painful period".

There was an "astonishing" eight-point fall in a key measure of consumer confidence to minus 29 between December and January, the biggest monthly drop since the 1992 recession, according to the survey by GfK NOP Social Research.

All the confidence measures recorded by the survey dropped over the past month, but the biggest fall was in the score representing consumers' willingness to make major purchases, which slumped 22 points to minus 29.

The index representing people's expectations for their financial situation over the next year slumped to minus 12, which is 16 down on a year ago, while the score for people's expectations for the economy over the next year was at minus 30, compared with minus two a year ago.

The firm's managing director Nick Moon said talk of a double-dip recession was "unavoidable" following the contraction in the UK economy in the final three months of 2010, and given there were more cuts to come.

"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," he said.

"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."