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Spending Cuts Drive Consumer Morale To 11-Month Low

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Consumer morale fell to its lowest in almost a year in July as worries about the impact of government spending cuts drove expectations for the next 12 months to their lowest since the deepest point of the recession.

The GfK/NOP Consumer Confidence Index fell three points to -22, its lowest since last August and below analysts' forecasts for a more modest decline to -20.

The survey was taken after the new coalition government announced the deepest spending cuts in a generation, but before official data showed the economy grew at its fastest pace in four years from April to June.

Nonetheless, it was the fifth consecutive fall in the confidence index, and GfK director Nick Moon said the downward trend pointed to a risk that the recovery could fizzle out.

"The continuing slide in the index makes a double-dip recession look more of a possibility as each month goes by," he said.

"It's possible that respondents are already factoring into their view of the economy over the next 12 months the likely recessionary impact of the government's announcement about the level of spending cuts it wishes to make."

Chancellor George Osborne unveiled plans to wipe out a government deficit of around 11 percent of economic output over the next five years, with some departments facing cuts of as much as a quarter of their budget.

The austerity measures are likely to lead to thousands of job losses in the public sector -- which employs a fifth of Britain's workforce -- while a 2.5 percentage point rise in value added tax to 20 percent from January will weigh heavily on household finances.

The index gauging people's expectations for their personal financial situation over the next 12 months fell 4 points to -6, the lowest since March 2009, when Britain was in the depths of its worst recession since World War Two.

Britons' view of the general economic situation over the next 12 months slipped 13 points to -25, also the lowest since last March. However, the index gauging Britons' willingness to spend improved to -16 from -24, the highest since February.

"This might be people thinking they should buy now before VAT goes up, or might reflect a view that the poor economic conditions mean there are bargains to be had," Moon said, noting that it may also be a rebound after a sharp fall in June.

The consumerless recovery?

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  • 429 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?

      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%

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