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UK morale hits 7-year low
LONDON, England(Reuters) -- British consumer confidence fell in March to its lowest level in more than seven years even before the war with Iraq started, a key survey showed on Friday. Martin Hamblin GfK's consumer confidence barometer fell to -10 in March from -9 in the month before. This was the lowest since December 1995 when the index had been in the middle of eight-year period when it had been negative every month. The survey was carried out between February 27 and March 18, just before the start of war in Iraq on March 20, the threat of which was hitting consumer confidence everywhere. German confidence hit an eight-year low in March, GfK said on Friday, while U.S. consumers were their most pessimistic in a decade, according to the Conference Board earlier this week. "The key issue is whether this deterioration represents a short-term dip in confidence that will largely unwind post-Iraqi war or whether there has been a more fundamental step change in UK consumer sentiment,'' said Geoffrey Dicks at RBS Financial Markets. The sub-index measuring optimism about the future of the economy fell by one point this month to -34, the lowest since September 1990 during the build-up to the last Gulf war. Gilts popped higher immediately after the report but analysts said it was still too early to say the figures pointed to a slowdown in consumer spending. BOE WORRIESThe Bank of England's Monetary Policy Committee noted earlier this month that the threat of war in Iraq was hitting business and consumer confidence but said the impact on activity was still difficult to discern. It cut interest rates to a 48-year low of 3.75 percent last month because of the weakening prospects for demand both at home and abroad as the threat of war clouded the outlook. In fact, while the balance measuring expectations for the future of personal finances fell by 2 points to +7, the lowest since October 2001, people still thought it was a slightly better time to make major purchases than they did a month ago. And consumers are also less inclined to save any money. The balance measuring perceptions of the current saving climate fell to an all-time low in March. "Not exactly a consumer that is starting to retrench,'' said John Butler, UK economist at HSBC Markets. More worryingly for BoE policymakers is that inflation expectations look to be on the rise. The measure monitoring expectations for the cost of living over the next year has risen by six points to +84, the highest since June 2001 and denoting people expecting higher inflation. MPC member Marian Bell said earlier this week that higher inflation in the short-term would not stand in the way of further interest rate cuts if needed but said the faster price rises should not start feeding into higher wages. "What would be of concern, however, would be any sign that higher inflation rates were becoming entrenched through increased inflation expectations and the behaviour of wage and price setters,'' she told Reuters in an interview. Copyright 2003 Reuters. All rights reserved. This material may not be published, broadcast, rewritten, or redistributed.
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