British consumers became increasingly pessimistic about the state of the economy and their own finances during December, research suggested yesterday.
People’s confidence in their financial situation during the past 12 months dropped by five points during the month to stand deep in negative territory at minus 16, according to the GfK NOP Consumer Confidence Index.
Britons also feel downbeat about their prospects, with optimism about their financial situation during the coming year falling by one point to minus eight, well down on the plus three it stood at in December 2009.
Consumer confidence in the general economy for the past year fell five points to minus 51 during December, while expectations dropped by one point to minus 23, 17 points lower than a year ago.
The only measure of confidence that increased in December was the major purchase index, which jumped by 10 points to minus seven.
The increase was probably due to a combination of festive spending in the run-up to Christmas and people bringing forward major purchases before the January VAT increase to 20 per cent.
But the rise was enough to offset falls across the other four measures of confidence to keep the overall GfK NOP Consumer Confidence Index unchanged at minus 21, only two points lower than it was in December last year.
Nick Moon, managing director of GfK NOP Social Research, said: “At the moment consumer confidence is being propped up by one thing: a belief that the run-up to Christmas and the VAT hike is a good time for big-ticket retail purchases.
“This element of the index has distorted the overall index to make it appear static when in fact it is teetering on the brink. Every other measure has fallen and without this one positive, consumer confidence would have fallen to its lowest level in over a year.
“Of course, the real test will come in January when festive spending ceases and the VAT increase comes in. Then we will finally see the full impact of how consumers are reacting to the first wave of austerity measures.”
GfK NOP questioned 2,007 people between December 3 and 12.
Howard Archer, chief UK and European economist at IHS Global Insight, said: “The underlying deterioration in consumer confidence in December is worrying, and it is evident that consumers are very worried about how they will be personally affected by the government’s austerity measures that will increasingly bite from the start of 2011, and are also seriously concerned over the wider impact of the spending cuts on the economy and jobs.
“This reinforces suspicion that consumers will be very cautious in their spending in 2011 in the face of serious headwinds.”