UK consumer confidence dives after VAT rise
Consumers' confidence in spending fell at its fastest rate on record during January following the Government's VAT increase.
People's attitudes towards the economy deteriorated during January. Photo: ALAMY
7:35AM GMT 16 Feb 2011
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Nationwide's spending index dived by 20 points during the month to stand at 70, the lowest level since November 2008 when the UK was in recession, and the steepest drop recorded since the study began in 2004.
Just over half of people thought it was a bad time to make a major purchase, while 22pc also thought it was a bad time to buy household goods, up from just 15pc in December.
People's attitudes towards the economy also deteriorated during the month, with drops in confidence about both the current and future economic situation recorded.
The expectations index fell by 10 points, with less than one in five people expecting the economy to improve during the coming six months.
Instead, 36pc think it will be worse than it is now, while 58pc think there will not be many jobs available going forward and 19% are anticipating a fall in their household income.
Nationwide said recent figures showing that the economy shrank during the fourth quarter were likely to have added to consumers' concerns about the future economic outlook.
The present situation index was also two points lower at 23, with 67pc of people saying they thought the current economic situation was bad, 4pc more than in December, and 24pc saying they did not think there were many jobs available.
The overall consumer confidence index dropped by seven points to 47, almost completely reversing the bounce seen in December and leaving it just six points above its all-time low.
Robert Gardner, Nationwide's chief economist, said: "Household confidence remained in the doldrums in January, with the main index falling towards the all time lows recorded during the recession.
"This follows a small bounce in December and confirms that consumers are still feeling very subdued about their own personal circumstances.
"Consumer perceptions are likely to have been dented by the rise in VAT and the upward pressure on inflation more generally, with rising prices for petrol and other essentials likely to have been recorded during the month. This will have put further pressure on household budgets in January."
People are also feeling pessimistic about the prospects for the property market, expecting house prices to fall by an average of 1.1pc during the coming six months.
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