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U.K. consumer confidence slides backward in July as tough economy takes its toll

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Confidence among U.K. consumers fell back sharply in July after months of improvement as inflation and high interest rates began to put a squeeze on spending, according to a survey published Friday.

Consumer confidence slid six points to minus 30 this month from minus 24 in June, according to the index compiled by consumer-research firm GfK, breaking five straight months of improving sentiment. This was worse than the minus 26 expected by economists, according to a Wall Street Journal poll.

All measures in the survey–including respondents’ feelings about their personal financial situation and the wider economy for the next 12 months–were lower than in June.

The worsening consumer sentiment brings to an end the resilience shown previously in the year–which saw confidence steadily improve from record lows last year–despite the inflationary squeeze on purchasing power and with interest rates hitting homeowners and renters alike, GfK’s Client Strategy Director Joe Staton said.

“The recent fall in headline inflation will do little to improve the financial mood,” he said. “Consumers need to see falling prices and interest rates before that happens.”

Consumers will likely pull back further from spending ahead as they struggle to make ends meet, and this year’s gains in confidence could disappear, Staton warned.

“Reality has started to bite,” he said. “All in all, it’s bad news.”

One of the most sharply declining metrics was respondents’ expectations for the general economic situation over the coming year, suggesting bad news for retailers as consumers draw back from spending in a worsening economy.

The slide in confidence comes despite U.K. inflation falling more than expected in June, with the main rate dropping to 7.9%. Interest rates are nevertheless likely to remain high in the near term, with the Bank of England expected to raise its key rate at its meeting next month, though the better inflation figures may give it scope to limit its hike.

However, continued high wage growth could limit the speed at which inflation eases, market analyst Jamie Dutta at Vantage said in a research note this week.

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