LONDON (Reuters) - Consumer confidence fell in February to its lowest since records began in 2004, a survey showed on Friday, fuelling doubts about the strength of economic recovery and the central bank’s ability to raise rates soon.
Nationwide Building Society’s consumer confidence index fell to 38 last month, its lowest since the survey began in May 2004, after another sharp drop to 48 in January.
The record fall was driven by a steep decline in the index that measures consumers’ expectations for the economy in six months. That fell to 50 in February, from 64 in January.
The spending component -- which gauges people’s appetite for buying household goods and other major purchases -- tumbled even further, down 18 points to 52 from 70.
The gloomy survey highlights the dilemma facing the Bank of England as it debates when to raise rates from a record low of 0.5 percent to try to curb inflation running at 4 percent, double its target.
Policymakers have repeatedly warned that they must balance the need to protect growth, after a shock contraction in gross domestic product late last year, with their mandate to keep inflation close to target.
Added uncertainty about the global economic outlook in the wake of the massive earthquake and tsunami in Japan on Friday has prompted financial markets to push back expectations for a interest rate rise until August, from as early as May previously.
Nationwide’s chief economist Robert Gardner blamed the slump in confidence on the uncertain economic outlook and said households were worried about high unemployment, weak wage growth, high inflation and January’s rise in the VAT sales tax.
“The UK recovery remains sluggish and there was little positive news in February to give consumers a much-needed boost,” Gardner said in a statement.
“News that the economy shrank in the final quarter of 2010 will have done nothing to lift already dampened spirits.”
The government, which announces its tax and spending plans on March 23, has faced mounting pressure to show that its deficit-cutting agenda will not damage the economy.
The Labour Party has accused the government of risking the recovery by cutting spending too quickly and too deeply in its attempts to reduce a record peacetime budget deficit.
Despite surveys suggesting the economy bounced back in the first quarter of this year, the Nationwide survey showed consumers are pessimistic about its current performance.
The index measuring the strength of the economy in February fell to 20 from 23 in January, its lowest point in 18 months and not far off its record low of 17 seen during the recession.
Nationwide and polling company TNS-RI Research interviewed 1,000 people between January 24 and February 20 for the survey.
Editing by Susan Fenton