By Max Clarke

The confidence of the UK’s consumers has taken another blow, dropping 2 points in July of this year as strained household incomes and high inflation force shoppers to cut back.

Consumer spending ability has plummeted, the nationwide Consumer Confidence Index shows, hitting a low of 73 points, compared to the long run average of 90. More than half of consumers surveyed believed the present was an inappropriate time to make purchases.

Inflation, the Bank of England calculate, will remain above target for the remainder of this year, and unemployment is forecast to rise still further before subsiding. It is therefore unlikely that consumer confidence will wane for the foreseeable future, as Robert Gardner, Nationwide’s Chief Economist explains:

“With the economic recovery still facing strong headwinds it is unlikely that we will see any considerable improvement in confidence in the remainder of 2011. Indeed, it may be that we see a further deterioration in August, following riots in a number of UK cities and the sharp declines seen in stock markets around the world.

Whilst low, the Spending, Confidence and Present Situation indexes- all barometers for the UK’s broader economic situation- all remain above their long-term lows seen in mid-2009, reflecting growth in the economy. Though little progress has been made this year, growth has remained positive.

Households holding back on expenses in light of an uncertain economic situation is further delaying a retail-led recovery. As confidence and household spend grow, the retail sector will expand, boosting headcount and further raising confidence.

“Throughout 2011, attitudes towards spending have hardened, with the exception of the short-lived consumer exuberance seen in May. In particular, there has been a rise in the number of consumers who believe now is a bad time to make major purchases. With consumers continuing to expect a fall in house prices over the next six months, it is perhaps unsurprising they are expressing reservations towards making substantial financial commitments at the present time,” commented Gardner.

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