U.K. June Consumer Confidence Slumps to Lowest in Four Years

By Brian Swint

July 9 (Bloomberg) -- U.K. consumer confidence declined to the lowest level since at least 2004 in June as inflation accelerated and the economic slowdown deepened, Nationwide Building Society said.

Nationwide's index of sentiment, taken from the responses of 1,000 people, declined 6 points to 63, the lowest since the survey began in May 2004, Britain's fourth-biggest mortgage lender said today in an e-mailed statement.

The U.K. is skirting a recession as house prices fall, banks roll back credit and oil costs increase. Bank of England Governor Mervyn King, who votes in an interest-rate decision tomorrow, has said that the inflation rate may jump to 4 percent, double the target, and that the economy may contract.

Consumers ``are recognizing that the economy is weakening, and that's going to affect them,'' said Fionnuala Earley, chief economist at Nationwide, in an interview on Bloomberg Television. ``The next move in rates will be down, but it will be much later this year or next year.''

All but one of 49 economists in a Bloomberg News survey predict the Bank of England will keep the key rate unchanged at 5 percent tomorrow. Nationwide said there is a 20 percent chance that the bank will raise interest rates.

Faster Inflation

Inflation climbed to 3.3 percent in May, the fastest pace since at least 1997, and King said last month that the rate may exceed 4 percent later this year. In May, King said the economy may see the ``odd quarter or two'' of contraction as consumers pare spending.

More than half the respondents in the Nationwide survey expect the economic outlook to worsen over the next six months, and around 70 percent predict their incomes will stay the same in that period, the report showed.

The U.K.'s benchmark FTSE 100 Index yesterday extended its decline from last year's high to 20 percent, the common definition of a bear market.

House prices fell the most since 1992 in June as banks increased mortgage rates and made few loans available, Nationwide said July 1. Persimmon Plc, the U.K.'s second-biggest homebuilder, said yesterday it plans to cut 1,100 jobs to lower costs amid the worst British housing slump in 30 years.

``Very few people so far are affected by unemployment, but with more bad news coming through from homebuilders, that may start to change their perceptions,'' Earley said.

Unemployment may rise 58 percent to 1.3 million by the middle of 2010, the Center for Economic and Social Inclusion, a government-supported research group, predicted this week.

Nationwide started publishing seasonally adjusted figures with this report for the first time since the survey started. That reading showed the main confidence index falling to 61 from 65. The survey was conducted between May 19 and June 22.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.