U.K. Consumer Confidence at Record Low

By Jennifer Ryan - Nov 17, 2011 5:20 PM GMT+0700

U.K. consumer confidence fell to a record low in October as Europe’s debt crisis and the unemployment outlook worsened, Nationwide Building Society said.

An index of sentiment dropped 9 points from the previous month to 36, the lowest since the index began in May 2004, the Swindon, England-based customer-owned lender said in an e-mailed report today. A gauge of consumers’ expectations fell 14 points to a record low of 48.

Bank of England Governor Mervyn King said yesterday the U.K. economy faces a “markedly weaker” outlook amid persistent danger from turmoil in the euro area. The bank’s forecasts show inflation is more likely than not to be below its 2 percent target in two years, suggesting policy makers may have to increase their bond-purchase plan again after a 75 billion-pound ($118 billion) expansion in October.

“A wave of disappointing economic news at home and ongoing uncertainty surrounding the euro crisis has dealt a heavy blow to sentiment,” Robert Gardner, chief economist at Nationwide, said in the report. The increase in bond purchases “should help to stimulate the economy in the months ahead.”

The pound was little changed against the dollar after the report, and traded at $1.5734 at 10:18 a.m. in London.

Household ‘Pressures’

A gauge of Britons’ assessment of their present situation fell 3 points to 18, Nationwide said. An index of shoppers’ views on whether it’s a good time to make a major purchase, such as a house or car, dropped 2 points to 75.

Data yesterday showed unemployment jumped in the third quarter as the number of young people looking for work climbed above 1 million for the first time in at least 19 years. In October, jobless claims rose 5,300 to 1.6 million. Inflation was 5 percent in October, according to a Nov. 15 report.

“Pressures on household budgets have also intensified, with underlying wage growth running at less than half the rate of inflation and the jobs market showing renewed signs of weakness,” Gardner said.

Still, households may benefit as the inflation rate drops. King said the central bank forecasts that consumer-price growth will ease “sharply” next year and take-home pay will “recover slowly,” easing pressure on consumers and helping support growth.

Waning Demand

U.K. retail sales unexpectedly rose 0.6 percent in October from the previous month, the Office for National Statistics said today in London. The median forecast in a Bloomberg News survey of 25 economists was for a 0.2 percent drop.

Sales defied forecasts as shops lured cash-strapped consumers with discounts. The gains may not last, as Britons struggle to shake off strains from labor-market slack, above- target inflation and the biggest fiscal squeeze since World War II.

The data “suggest that demand on the high street has continued to grow, despite the current intensity of the fiscal and inflation squeezes on consumers,” Samuel Tombs, economist at Capital Economics Ltd. in London, said in a research note. Still, given pressure on shoppers, “overall real consumer spending is likely to continue to fall sharply for some time to come.”

To contact the reporter on this story: Jennifer Ryan in London at jryan13@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net