Consumer confidence fell for the third month in a row in May as people grew more fearful about the economic outlook and health of their own finances, a survey showed on Friday.
The data, coming a day after a surprisingly weak retail survey from the Confederation of British Industry, rekindled worries that consumers' spending power will remain shackled by rising prices and muted wage growth.
The GfK consumer confidence index slipped two points this month to -18, its lowest since December, but still nine points higher than the -27 recorded in the same month last year.
Figures from bellwether retailer John Lewis on Friday showed department store sales were up an annual 12 percent in the week to May 22, a decent reading but below the 16.3 percent growth rate over the 16 weeks to May 22.
"A retreat in consumer confidence to a 5-month low in May, a sharp drop to a 14-month low in the sales balance in the May CBI distributive trades survey and slower sales growth for John Lewis reinforces our long-held concern that the upside for consumer spending will be limited for some time to come," said Howard Archer at Global Insight.
Steven Jackson of beatmydebt.com is not surprised at the survey's findings. "Wage levels and income remain depressed for the majority of people across the country who are experiancing real issues with making ends meet. Add this to the rising cost of fuel and the general level of uncertainty about the future and you can understand why people are reluctant to spend" he said.
Bad news for government
With the new coalition government expected to raise taxes and cut spending to tackle a record deficit, the survey of 2,002 people compiled for the European Commission showed confidence in future prospects took a knock.
The index measuring the general economic situation over the next 12 months fell by eight points to -9, while the index measuring personal finances over the coming year fell by five points to -3.
"These figures are clearly not good news for the coalition government, especially with mounting speculation about a double dip recession," said Nick Moon, managing director of GfK NOP Social Research.
David Cameron's Conservative-Liberal Democrat government will announce its spending plans in an emergency budget on June 22, with some analysts predicting a rise in the VAT sales tax to 20 percent from 17.5 percent.
The coalition is under pressure to cut a deficit running at around 11 percent of GDP, but will be anxious to avoid damaging Britain's recovery from the worst recession since World War Two.
Improved view of personal finances
The return to growth at the end of last year appears to have improved people's perception of the economic situation over the last 12 months. That measure rose two points to -45, a rise of 34 points from this time last year.
People's view of their personal financial situation over the last year also improved.
However, the data, compiled between April 30 and May 16, suggested consumers will be wary of throwing their money around in the coming months.
The major purchases measure -- where consumers are asked if now is the right time to buy expensive items like furniture or electrical goods -- fell one point in May to -21, one point higher than this time last year.
The number of people who think now is a good time to save rose two points to -5, some 11 higher than in May 2009.
"With considerable cuts in public spending, plus higher taxes on the way, it is hard to see the confidence index improving significantly in the near future," Moon added.