Consumers at lowest ebb in three years

Fears of a deepening recession and the euro crisis hit shoppers' confidence, despite petrol price drop
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Rising anxiety over the UK's worsening double-dip recession is set to further undermine fragile consumer confidence this month, despite some respite for motorists from falling petrol prices.

Experts predict the GfK index – which surveys individuals' assessment of their personal finances, the wider economy and willingness to splash out on "big ticket" purchases – will slide to minus 33 in May. This leaves confidence at its lowest ebb since last December and close to the depths of early 2009.

Worries over recession – as well as a messy Greek pull-out of the euro – are likely to hit sentiment among shoppers despite a sharp fall in inflation to 3 per cent in April and better news on the jobs market, economists said. IHS Global Insight's Howard Archer said: "It doesn't help matters when the papers are full of recession and Greek chaos is leading the news every night."

Petrol prices are down nearly 7p a litre from mid-April's record highs of 142.5p, according to the AA – potentially freeing up an extra £3.3bn a day for consumers to spend elsewhere. But the Chancellor is due to clobber motorists again with a 3p a litre rise in fuel duty from August, while price falls at the pump have yet to fully reflect a 10p fall in wholesale petrol costs.

An AA spokesman said: "This is the typical story of petrol prices rocketing when oil prices go up, and falling like a feather when prices come down. If the full 10p was passed on there would be an extra £5.1bn available for high-street spending."

Thousands of homeowners have also been nursing higher mortgage costs since the start of the month after banks including Clydesdale & Yorkshire, the Co-operative, Halifax and NatWest raised standard variable rates.

The Office for Budget Responsibility expects spending to rise 0.5 per cent this year although Capital Economics is pencilling in a 0.5 per cent fall.

Services sector expects growth

Rising optimism among Britain's dominant services firms boosted recovery hopes, despite the nation's slump into an even deeper double-dip recession than first thought.

The CBI's latest survey of the sector, which accounts for more than three-quarters of UK output, found that consumer-facing businesses such as restaurants and travel firms expect the first growth in new orders for 18 months in the next quarter. Accountancy, IT and legal firms also anticipate rising volumes over the summer.

Economic prospects largely hinge on the health of the services sector, which managed growth of just 0.1 per cent.