UK consumer confidence tumbles to lowest level on record in August - Nationwide

LONDON (AFX) - UK consumer confidence tumbled in August, slumping to its lowest level on record, as the Bank of England's unexpected interest rate rise took its toll on sentiment, a survey by the country's largest building society showed.

In its monthly survey, the Nationwide said its main consumer confidence index fell dramatically to its lowest level since the survey began in May 2004. The index now stands at 83, down sharply from 94 in July and well below the previous low of 92 recorded in October 2005.

The Bank of England's unexpected decision to raise interest rates by a quarter point to 4.75 pct in early August "clearly had a dramatic effect", while tensions between Israel and Lebanon and the airport terror alert also had an impact, said Nationwide executive director Stuart Bernau.

If confidence fails to bounce back as consumers begin to discount the rate rise, the impact on many areas of the economy "could be severe", he warned.

"The coming months will prove to be telling as they will show whether confidence can recover at a time when consumers' pockets begin to feel the real effect of the rate change," he said.

The breakdown of the survey revealed that confidence about the future state of the economy and the employment situation fell by 16 points -- the largest monthly fall ever seen -- to take the expectations index to 81, again its lowest ever level.

A total of 34 pct of those polled believe the economic situation in the UK will be worse in six months time, up significantly on 24 pct in July.

In other findings, confidence about the present situation also fell two points to 86, a new low for the index, while the index on whether now is a good time to spend fell by eight points to 96.

Expectations for future house price rises also moderated, with consumers now expecting prices to rise by 3.5 pct over the coming six months, down from 4.2 pct in July.

"With the recent increase in interest rates it is unsurprising to see expectations fall back this month as current and potential home owners evaluate their financial position before investing in bricks and mortar," Nationwide said.

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