During the first six months of the year, household consumption continued to grow slightly, despite the rise in food and fuel costs, debt levels rose and house prices fell.
As a result, this continued spending created an even worse underlying financial reality for the UK consumer but the latest survey shows that the credit crunch has finally hit consumer spending, as UK families are overstretched due to rising bills and whose wages are not in line with inflation.
Consequently, families feel much poorer and are cutting back and are only buying essential items.
Evidence of this came from the GfK NOP barometer of UK consumer confidence, who discovered that consumer confidence is at its lowest level since 1974 as soaring food and fuel prices sparks concern for the economy and personal finances.
The GfK NOP barometer of UK consumer confidence scored -39 in July, this represents the lowest level recorded since the survey commenced in 1974 and down from -34 in June.
The survey also found that nearly half of people said they had started buying supermarkets’
Furthermore, figures from the CBI revealed that sales on the High Street have slumped to their lowest level for a quarter of a century.
Alliance Trust Research Centre’s Financial Reality Index also established that as well as a record low in consumers’ household budgets, the second quarter of the year also brings a record low in net wealth conditions.
The steep decline in property prices and rising levels of debt have been a huge burden on household net wealth.
Commenting on the findings, Head of Alliance Trust Research Centre, Shona Dobbie, explained that the credit crunch has now fully started to hit consumers and net wealth conditions are at a record low.
As forecasted last quarter, equity markets and house prices have continued to decline, and together with high levels of consumer debt, this has caused the Financial Reality Index to fall to a record low, concluded Ms. Dobie.
This coupled with reports from America that one of the big banks are likely to crash and the falling pound against the dollar means things are almost certain to get worse before they get better.
