U.K. Consumer Confidence Drops the Most Since 2004

By Svenja O'Donnell
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Aug. 6 (Bloomberg) -- U.K. consumer confidence fell the most in at least four years in July after house prices slumped, unemployment rose and inflation accelerated, Nationwide Building Society said.

An index of sentiment, taken from the responses of 1,000 people from June 23 to July 20, declined 11 points to 51, the biggest drop since the survey began in May 2004, Britain's second- biggest mortgage lender said today in an e-mailed statement. The level is also the lowest since the series started.

``Talk of the increasing chances of a recession, more weakening in the housing market and the continuing rise of food and energy costs will have further dented confidence, as will reports of job losses,'' Fionnuala Earley, Nationwide's chief economist, said in the statement.

The British economy grew 0.1 percent in the quarter through July, the slowest pace in three years, the National Institute of Economic and Social Research said in a report today. Bank of England policy makers will still avoid cutting the benchmark interest rate tomorrow to avert a recession as they battle the fastest inflation in at least 11 years, economists say.

The pound fell against the euro today after the Nationwide report. The currency weakened to 79.22 pence per euro at 9:04 a.m. in London, from 79.06 pence yesterday.

The central bank will keep its benchmark rate unchanged for a fourth month at 5 percent tomorrow, according to all 60 economists in a Bloomberg News survey.

Wadhwani's View

``The U.K. economy is already in a recession or close to a recession,'' former Bank of England policy maker Sushil Wadhwani said in an interview with BBC Radio 4 today in London. ``All forward-looking data for activity suggest a weakening. I would vote to cut by 25 basis points.''

Almost two-thirds of people said the current economic situation is bad, and 85 percent predicted it will be the same or worse in six months' time, Nationwide's survey showed.

Nationwide said last week that house prices dropped 8.1 percent in July from a year earlier, the biggest decline in almost two decades. Nationwide was the U.K. lender with the biggest outstanding mortgage balance in 2007 after HBOS Plc, according to data released last week by the Council of Mortgage Lenders.

Forty-two percent of people surveyed predicted there will be fewer jobs available in six months' time, Nationwide said. Claims for unemployment benefits increased 15,500 in June, the most since 1992, the Office for National Statistics said on July 16.

Labor Market

The number of U.K. workers placed in permanent jobs fell at the fastest rate since December 2001, according to a separate report today by the Recruitment and Employment Confederation and KPMG. The index of permanent placements fell to 44.1 in July, from 48.2 the previous month, they said in an e-mailed statement.

Economic growth in the three months through July was the weakest since the quarter through May 2005, Niesr said in an estimate released today.

Inflation accelerated to 3.8 percent in June, the fastest in more than a decade and almost double the bank's 2 percent target. Oil rose above $147 a barrel for the first time last month, while corn and wheat prices climbed to the highest ever this year.

``With inflation far above target and rising there remains a case for an interest-rate increase, with interest rates to be held at a higher level until the inflation rates starts to turn down,'' Niesr said in a statement.

To contact the reporter on this story: Svenja O'Donnell in London at sodonnell@bloomberg.net.