UK consumers cut back on spending

UK consumers became more cautious about spending money during January as British government stimulus schemes came to an end, research showed today.

The number of people who thought it was a good time to make a major purchase, such as a house or car, dropped to 32% during the month, down from 35% in December, according to Nationwide.

The dip contributed to a 12-point slide in the group's spending index, which normally increases significantly during January.

Nationwide said the fall may have been caused by the removal of various government stimulus schemes, such as the reduced rate of VAT and the stamp duty holiday on properties costing up to £175,000 (€200,806), while the car scrappage scheme is also due to come to an end this month.

However, it added that it may also be due to consumers preferring to use their money to pay down debt following the festive season, rather than to make large purchases.

Martin Gahbauer, Nationwide's chief economist, said: "Heavy discounting on the high street and government-driven initiatives, such as lower VAT, the car scrappage scheme and the stamp duty holiday, combined to keep the spending index buoyant throughout much of 2009.

"The removal of these initiatives may now be causing consumers to reconsider parting with their cash at a time of year when we would normally expect to see high levels of spending confidence."

The overall consumer confidence index increased by three points during the month to 73, following a surprise fall in December, to stand at nearly double the level it was at in January 2009.

British consumers are beginning to feel more confident about the economy following a turbulent 12 months, with 22% saying they thought there were now some or many jobs available, while the number of people who think the current economic situation is bad fell to 69%, down from 82% in January last year.

More than a third of people now think the economy will have improved in six months' time, compared with just 17% a year earlier, and 29% think there will be more jobs available, the highest number since June 2008.

TNS-RI questioned 1,000 people between December 21 and January 17.