July 28, 2011 / 11:26 PM / 9 years ago

Consumer confidence drops back towards 2-year low

Clouds hang over Britain's Houses of Parliament, and the London Eye in central London January 28, 2011.REUTERS/Stefan Wermuth

LONDON (Reuters) - Consumer sentiment fell back in July towards the two-year low seen earlier this year, a survey showed on Friday, fuelling concerns that cash-strapped consumers will continue to cut back spending and hamper the fragile economic recovery.

The Gfk NOP consumer confidence index dropped five points to -30, almost matching the two-year low of -31 hit in April, as the one-off boost from the festivities and the extra holiday for the royal wedding faded.

Economists had only expected a dip to -27.

“What will concern the government most is that the biggest drop of nine points was in people’s expectations of the performance of the economy over the next 12 months,” said Nick Moon, managing director of GfK NOP social research.

“When combined with people’s pessimistic expectations for their own finances over the next year, retailers can expect tough conditions to persist for a while yet — threatening an already fragile recovery.”

Retail sales fell at the fastest rate for a year in July, according to a survey published earlier this week by the Confederation of British Industry and prospects for the sector remain gloomy as consumers rein in their spending in the face of inflation, slow wage growth and higher taxes.

A number of British retailers, including women’s fashion chain Jane Norman and off-licence chain Oddbins, have fallen into administration in recent months and jobs have been cut across the retail sector, with further job losses expected as consumer morale remains weak.

Before this year, the consumer confidence index has only ever been lower twice since it was launched in 1974, during the recessions of early 1990 and mid-2008, and is down eight points compared to this time last year.

The survey was conducted with a sample of 2,000 people from July 1 to 10 by GfK NOP on behalf of the European Commission.

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