UK consumer confidence falls to lowest level in seven years

Britons' confidence in the economic outlook slumped to its lowest level for seven years as fears over the outcome of the Iraqi conflict hit home, a new survey showed yesterday.

Britons' confidence in the economic outlook slumped to its lowest level for seven years as fears over the outcome of the Iraqi conflict hit home, a new survey showed yesterday.

The poll, which was carried out just two days before US and UK forces launched the attack on Iraq on 20 March, showed consumers had grown gloomier over both the economy and their own financial situation.

Stock markets and the dollar fell while the price of gold rose yesterday as politicians warned the war could last for weeks rather than days.

The consumer confidence index run by Martin Hamblin GfK fell to minus 10 in March from minus 9 in February. This was the lowest since December 1995. Optimism about the future of the economy fell one point this month to minus 34, the lowest since September 1990 during the build-up to the Gulf War.

The Conservatives seized on the figures, blaming government policies on pensions and taxation for the fall in confidence.

Michael Howard, the shadow Chancellor, said: "The reality is that confidence is falling because people's confidence in the Chancellor is falling. Savers and pensions have all been hit by Labour's policies."

Economists said it was hard to tell how much of the deterioration was because of the war and how much was linked to the weakening economy.

John Butler, a UK economist at HSBC, said the detailed survey showed households now had the least inclination to save than at any time since 1981.

"That's not exactly a consumer that is starting to retrench," he said. "One would have expected confidence to soften given the doom and gloom but is far from a collapse and could just prove temporary."

Mr Butler said he was more concerned by the impact that the mountain of debt consumers have taken on would have on consumer spending next year.

"The build-up of debt will cause an exaggerated slowdown in spending as unemployment rises and real disposable income growth slows," he said.

But Charlie Bean, the chief economist at the Bank of England, yesterday moved to allay fears, saying a sharp fall in house prices would not necessarily trigger a fall in household spending. "Net household wealth would fall, but rational consumers would spread the required adjustment over the rest of their lives," he told bankers in Switzerland.

Investors' confidence in the outcome of the war also fell yesterday as the FTSE 100 fell 20.6 points, or 0.6 per cent, to 3708.5. This took the week's decline to 4 per cent after two weeks of gains during which the blue-chip index added 11 per cent.

On Wall Street the Dow Jones closed down 0.7 per cent, at 8,146. Meanwhile, the dollar recorded its biggest weekly loss against the euro in eight months.

Yesterday the oil price fell back below the $30 a barrel mark as coalition aircraft attacked Iraqi divisions outside Baghdad and bombed targets in the capital.

"There is still plenty of oil on the market," Alvaro Silva, the secretary general of the producers' cartel Opec, said.