Consumer confidence slumps

Consumer confidence deteriorated sharply during February as price rises put pressure on people's disposable income and the economic recovery remained "sluggish", research has indicated.

The Nationwide Consumer Confidence index dived by 10 points during the month to stand at 38, the lowest level recorded since it was first launched in May 2004.

The steep fall was blamed on a deterioration in people's optimism about the future state of the economy and jobs market, with the group's expectations index also falling to a record low.

Around 42% of people think the economy will have deteriorated further, rather than improved, in six months' time, and 63% think there will be fewer jobs available.

The group said people's sentiments were being hit by ongoing high levels of unemployment and muted wage growth, while their disposable income was being stretched by soaring inflation, with high fuel prices and the VAT rise exacerbating the situation.

At the same time, news that economy contracted during the final quarter of last year added to the gloom, as consumers began to realise they faced a "slow grind" to recovery, rather than a quick return to form.

There are also growing concerns that high inflation will cause the Bank of England to raise interest rates during the second quarter of the year, putting further pressure on household budgets.

Robert Gardner, Nationwide's chief economist, said:

 "There are many factors that may be holding back confidence at the moment. The labour market remains fragile, with the unemployment rate still high and wage growth weak.

"Inflation is showing few signs of easing, and high fuel prices and the VAT increase have further eroded disposable incomes in recent months.

"Furthermore, news that the economy shrank in the final quarter of 2010 will have done nothing to lift already dampened spirits."