11/05/2012 00:35:00

UK Consumer Confidence Slumps After Budget

LONDON -- U.K. consumer confidence sank in April as financial expectations and plans to make major purchases fell following the heavily criticized government budget, a survey showed Friday.

And, the index could take a further downward turn in May as consumers take on board news that the U.K. economy has returned to recession.

U.K. high street lender Nationwide's monthly consumer confidence index fell 44 in April from 53 in March. All three sub-sectors declined, but the sharpest drop was in the spending index as consumers are increasingly reluctant to make major purchases and as more respondents expect their household income to be lower in six months time.

"The index has consistently remained well below its long‐run average, signalling ongoing caution on the part of U.K. consumers," said Robert Gardner, Nationwide" s chief economist.

"It is not surprising that confidence remains fragile, with the economy shrinking over the past six months and labour market conditions still weak," Gardner said, adding that while easing inflation buoyed confidence earlier in the year, an increase in fuel and food costs more recently has meant concerns over income have begun to return.

The period over which consumers were questioned directly followed the March 21 government budget report, but came before the U.K. economy was confirmed to have returned to recession. So, while many will have had time to digest the budget which unveiled several unpopular policies -- including cutting the higher rate of tax from 50% to 45% and changes to tax rules for pensioners and warm food -- it is possible the index could fall further in May as confirmation of the weak economy and uncertainty surrounding a speedy recovery take hold.

"Looking forward, there are a number of one‐off factors that are likely to impact confidence in the months ahead. News that the U.K. dipped back into recession at the start of the year may further depress sentiment in the near-term," Gardner said.

U.K. gross domestic product shrank 0.2% on the quarter in the first three months of the year. That followed a 0.3% contraction in the fourth quarter of last year and fulfills a widely held calculation of recession -- two consecutive quarters of economic contraction.

Prospects for recovery remain uncertain as the euro zone -- the U.K.'s largest trading partner -- continues to struggle amid the deepening debt crisis and wide ranging austerity measures.

Other details of the survey showed that the consumers' viewed the present situation as worse than in March, while expectations over job prospects were little changed with 56% of respondents saying there will only be a few jobs around in the coming six months compared with 22% who say there will be more opportunity to find a job.

-By Ilona Billington, Dow Jones Newswires, +44 20 7842 9452; ilona.billington@dowjones.com

(END) Dow Jones Newswires

May 10, 2012 19:35 ET (23:35 GMT)

Copyright (c) 2012 Dow Jones & Company, Inc.

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