U.K. consumer confidence slumped to its weakest level since the depth of the recession in February 2009 as the government’s budget cuts began in earnest, a report by GfK NOP Ltd. showed.
The index of sentiment fell to minus 31 in April from minus 28 in March, the London-based research group said in an e-mailed statement today. The reading is down from minus 16 a year earlier and each of the five measures that make up the gauge declined on the month.
Household finances are under pressure from inflation that’s double the Bank of England’s 2 percent target and the tightest fiscal squeeze since World War II. The economy’s 0.5 percent expansion in the first quarter was just enough to recover the production lost during in the previous three months, when freezing weather disrupted business across the country.
“Coming after six months of stagnant economic growth, this is a significant drop, one that is bad news for the government and bad news for the economy” GfK Social Research Managing Director Nick Moon said in the statement. “These figures must make the possibility of a double-dip recession increasingly real.”
A measure of consumers’ assessment of their personal financial situation over the last 12 months dropped 4 points to minus 23, and the index on the next 12 months declined the same amount to minus 14. A gauge of their willingness to make major purchases fell 2 points to minus 31.
GfK’s index covering consumers’ views on the general economic situation over the past 12 months dropped 3 points to minus 57, while a measure of sentiment on the general economic situation in the coming 12 months fell 1 point to minus 30.
The report may reinforce investor expectations that the Bank of England will maintain its benchmark interest rate at a record low of 0.5 percent to support the economy.
The rate will rise by 25 basis points by November, according to forward contracts on the sterling overnight interbank average, or Sonia, compiled by Tullett Prebon Ltd. On March 30, Sonia contracts showed investors expected a rate increase in July.
Associated British Foods Plc, the owner of Primark clothes stores, reduced its full-year earnings forecast yesterday as it anticipated weak consumer confidence and rising cotton prices will cut profitability at its clothing unit.
“The squeeze on consumer disposable income will continue for some while yet,” Chief Executive Officer George Weston said in a phone interview.
Chancellor of the Exchequer George Osborne said yesterday’s economic growth report “reinforces our determination” to stick to a deficit-reduction plan that will eliminate more than 300,000 public-sector jobs by 2015.
GfK surveyed 2,015 people from April 1 to April 10. The results have a margin of error of 2 percentage points.