By Max Clarke

Consumer confidence has tumbled to its lowest level since 2004, Nationwide Building Society’s latest index shows.

"There are many factors that may be holding back confidence at the moment.” Explained chief economist Robert Gardner. “The labour market remains fragile, with the unemployment rate still high and wage growth weak. Inflation is showing few signs of easing, and high fuel prices and the VAT increase have further eroded disposable incomes in recent months.

A recent report by price comparison company Uswitch indicated fuel prices had jumped 7% last week over the crises in Japan and Libya, while CPI (consumer price index) inflation nears 5%- far in excess of the Bank of England’s 2% target. These factors, combined with the increased pressure of government cuts and public sector redundancies, has depressed consumer confidence to its lowest level since Nationwide began its index.

However, there have been tentative signs that the economy has begun to return to growth. Indeed, firms returning to normal after the weather-related disruption at the end of last year is likely to give a boost to activity in the first quarter of 2011. While there are still risks to the outlook, a double-dip recession remains unlikely.