Consumer confidence falls again as pressure mounts on household income

Low wage increases and a tough jobs market have left many households unable to keep up with the cost of living

Gloomy consumers have become even more pessimistic about the outlook for Britain's economy, new data reveals today, amid fears that the recovery is continuing to falter.

The closely-watched Nationwide Consumer Confidence Index, fell two points to 49 during July, the building society said, a full 10 points below the level of a year ago – and 30 points below the index's long-term average.

The latest dip in confidence will add to concern the squeeze on household finances is driving Britain towards a double-dip recession. Robert Gardner, Nationwide's chief economist, said he did not expect to see any improvement in confidence this year.

"The combination of weak employment growth and wage increases that aren't enough to keep up with therising cost of living has acted as a dragging anchor on consumer confidence for some," said Mr Gardner. "This fall in sentiment suggests consumers may also be finding it necessary to hold back on discretionary household purchases in favour ofessential items such as food andenergy," he added.

The pressure on household incomes shows no sign of easing, with new figures from labour market analyst IDS today showing that pay settlements remain low. The average pay increase awarded over the three months to the end of July was just 2.5 per cent, IDS said, the same figure as seen over the previous three months.

While low wage settlements will do little to improve consumer confidence, the silver lining to the figures is that they will reinforce the Bank of England's view that high inflation has not prompted a vicious circle of spiralling wage demands.

That will help it to continue its policy of stimulating the economy through low interest rates – and possibly even a return to its quantitative easingprogramme.

The downbeat sentiments in the UK are being echoed across much of Europe, with Germany saying yesterday that business confidence in the country fell more sharply last month than at any time since the collapse of Lehman Brothers in September 2008.