High Street gloom as consumers stop spending

A slew of grim data has laid bare the fragile state of consumer confidence in the UK as demand for new cars plunged 20% in January, the high-street barometer John Lewis reported another week of falling sales and government figures showed record numbers of personal insolvencies.

Last week the GfK NOP consumer confidence index said that in January it had recorded its biggest fall since the nadir of the early 1990s recession and recent trading updates from retailers have shown consumers holding back from making big purchases. Like-for-like sales at John Lewis were down 1% in the week to 29 January, it said today, which follows the 2.2% drop seen the previous week with the retailer reporting that trade in its electricals departments was particularly weak, with sales down 5%.

With Insolvency Service figures showing that the number of people declared insolvent in England and Wales had reached a new all-time high of 135,089 in 2010, debt charities warned that pressure put on household incomes by this year's tax hikes, spending cuts and soaring inflation could push them higher still. "The picture is bleak," said Delroy Corinaldi, external affairs director at the debt charity Consumer Credit Counselling Service.

The monthly snapshot from the Society of Motor Manufacturers and Traders also made depressing reading, with sales of new registration cars to non-business customers tumbling 20.8% in January compared with the same month of 2010. Paul Everitt, chief executive, said: "This marks the beginning of a challenging year for the UK motor industry. Consumer confidence is low."

Although the UK climbed out of recession more than a year ago, Howard Archer, chief European and UK economist at IHS Global Insight, said consumers were worried about the future. The John Lewis figures indicated that consumers were becoming increasingly "less prepared or less able" to spend as inflation, fuelled by last month's VAT rise, hit home he said, adding: "The weaker John Lewis sales reinforces suspicion that consumers will be very cautious in their spending in 2011 in the face of serious headwinds."

Zero per cent credit cards and cheap personal loans fuelled spending in the boom years leading up to the financial crisis but consumers are only now being forced to live within their means. Analysis of retail sales and other economic indicators show the legacy of the downturn with Britons wary of making big purchases such as houses, cars and even furniture but also cutting back on everyday luxuries such as CDs, DVDs and supermarket treats.

Source : Zoe Wood - Guardian.co.uk