Bloomberg News

U.K. Consumer Confidence Drops as Outlook for Economy Darkens

July 29, 2011

July 28 (Bloomberg) -- U.K. consumer confidence fell in July as Britons became more pessimistic about the economic outlook, adding pressure on the Bank of England to keep the benchmark interest rate at a record low.

A sentiment index dropped to minus 30, the lowest since April, from minus 25 the previous month and minus 22 a year earlier, London-based GfK said in an e-mailed statement today. All five measures of the index fell, with a gauge of expectations for the economy in the coming year showing the biggest decline.

The U.K. economy expanded 0.2 percent in the second quarter after stagnating over the previous six months, and a report yesterday showed a retail-sales index fell to the lowest in 13 months in July. Even with the economic recovery under pressure, Chancellor of the Exchequer George Osborne said July 26 he’ll stick to his deficit-reduction program, the biggest since World War II.

“What will concern the government most is that the biggest drop of 9 points was in people’s expectations of the performance of the economy over the next 12 months,” Nick Moon, managing director of GfK social research, said in the statement. “Retailers can expect tough conditions to persist for a while yet, threatening an already fragile recovery.”

GfK’s measure of shoppers’ outlook for the economy fell to minus 27 in July from minus 18 the previous month, and expectations for their personal finances fell 4 points to minus 12. A gauge of their willingness to make major purchases dropped to minus 31 from minus 27.

‘Exceptional’ Squeeze

London-based Kingfisher Plc, Europe’s biggest home- improvement retailer, said July 21 sales at U.K. stores open at least a year fell 5.5 percent in the 11 weeks ended July 16, excluding currency swings.

“The U.K. market remains challenging,” Chief Executive Officer Ian Cheshire said. “We are very optimistic about our prospects this year and beyond. If the public-sector unemployment fears start to diminish in the second half, I think we will gradually see an improvement, but we’re certainly not assuming a rapid bounce back.”

Consumers are getting squeezed by inflation that’s soared to 4.2 percent, more than double the Bank of England’s 2 percent target. A retail index by the Confederation of British Industry fell to minus 5 this month from minus 2 in June, led by grocers and home-improvement stores. Policy maker David Miles said on July 27 that the squeeze on household incomes from inflation has been “exceptional.”

Bank officials left the benchmark interest rate at a record low of 0.5 percent this month and held their bond-purchase plan at 200 billion pounds ($327 billion).

--Editors: Fergal O’Brien, Eddie Buckle

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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