Consumer confidence in UK and US faltering as households cut back on spending
Rainy day: Consumers are putting off spending amid tough economic conditions.
Consumers on both sides of the Atlantic are cutting back and have little confidence in future growth, according to separate reports, raising fears that the global economy may be dragged back into recession.
Here in the UK, the GfK NOP index for consumer confidence dropped for the third month in a row to hit minus 31 in August, 13 points below a year ago and one point lower than July.
Meanwhile in the U.S., the private-sector Conference Board said its index of consumer attitudes sank to 44.5, from a downwardly revised 59.2 in July. The August reading was the weakest since April 2009, when the world's largest economy still languished in recession, while the drop was the largest since October 2008.
Faltering consumer confidence represents a significant obstacle for Governments on both sides of the Atlantic. Fears of job losses, low or no wage rises and soaring living costs have combined to make households cut their spending.
GDP growth has slowed, dipping to 0.2 per cent in the UK in the second quarter.
Meanwhile, businesses that have benefited from a corporation tax cut and a delay to a rise in employer National Insurance contributions are sitting on the cash, or dolling it out via increased dividends because they see little value in investing to expand when consumers are so reluctant to spend.
The GfK NOP reading of consumer confidence has dropped this low only three times before in the survey's 37-year history, and on two of those occasions - in 2008/9 and in early 1990 - the reading was accompanied by a recession.
It also hit minus 31 in April this year, but bounced back the following month amid the sunny weather and the royal wedding.
But the latest reading shows the royal feel-good factor has now worn off as the US and eurozone debt crises lead to global recession worries.
Graph shows consumer confidence faltering as UK growth slows.
Nick Moon, managing director of GfK NOP Social Research, said: 'With an increasing number of indicators suggesting the economy is either stagnating or returning to recession, the continuing loss of consumer confidence is a major worry for the Government.'
The latest survey, conducted on behalf of the European Commission, was driven lower mainly because people's opinions about the general economic outlook declined four points.
The climate for major purchases stayed at minus 31, which is 11 points lower than a year ago, as people's worries about the economy meant they were more likely to delay buying expensive items.
However, people's opinions about their own financial situation have improved slightly on last month.
Mr Moon added: 'While there has been a four-point drop in consumers' general view of the economic situation over the next 12 months, there has been a small improvement in how they view their own financial situations, indicating people are starting to adapt to the austere economic climate.'
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