Consumer confidence index at 11 month low

The GfK NOP index of consumer confidence fell to -22 in July from -19 in June, against analysts expectations of -20, and is now at the lowest level for 11 months. This is a very worrying sign for the UK government because essentially without consumer confidence there is no way that the UK economy can begin to build for the future with any real confidence. So why have consumers taken fright?

There's no doubt that public sector budget cuts, tax rises and other potential problems with the UK economy in the short to medium term are now impacting upon consumer confidence. If, as many experts predict, we see a reduction in consumer spending in the short term then this could feed concerns already emerging in the consumer marketplace. When you also consider that the UK government has no funding available to inject more hope and confidence into the UK economy, then we are in for a pretty difficult ride over the next few months.

Even if we were to see a pickup in UK retail sales in the short term this could be a true short-term phenomenon as consumers look to acquire big-ticket items before the increase in VAT on 3 January 2011. What happens after this date, when in theory the cost of all goods and services should increase, remains to be seen.