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Tuesday 01st of February 2011
January 28, 2011    

UK consumer confidence hit by VAT hike

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by Kay Murchie

A survey conducted between December and January revealed a sharp fall in consumer confidence.

According to the survey of consumer attitudes, carried out by GfK NOP Social Research, confidence plunged by 8 points to -29, the biggest fall since the last recession in 1992.

The research company highlights that the figure was the lowest since March 2009, when it stood at -30, at a time when the UK was in the midst of recession.

However, not only did consumer confidence plummet, all the measures fell, said GfK.

The most notable fall was recorded in the “major purchase index” which dived 22 points to -19.

Meanwhile, the index representing people’s expectations for their financial situation over the next 12 months also fell to -12.

The index for consumer’s expectations for the general economic situation over the next 12 months was down 7 points on the month to -2.

Commenting on the findings, managing director Nick Moon said: “The VAT increase is the first of the Government’s austerity measures that has had a widespread impact on consumers, and it seems to have hit people’s economic confidence hard, especially as the biggest drop was in consumers’ appetite for major purchases.”

Mr Moon explains that rising inflation could yet have a further negative impact on consumer confidence in the coming months.

There have been fears that a double dip recession is likely after figures this week revealed the UK economy contracted by 0.5% in the October to December period.

The figures shocked economists who had expected growth of 0.5% following growth of 0.7% in the third quarter and 1.1% in the April to June period.

Analysts had expected economic growth to slow – in light of the Government’s massive spending cuts – designed to bring down the budget deficit.

However, the results came as a surprise to many but have been attributed to the poor weather late last year.

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