Britons' Confidence Reaches Lowest Level Since Thatcher Quit

Britons' Confidence Reaches Lowest Level Since Thatcher Quit

May 30 (Bloomberg) -- U.K. consumer confidence dropped in May to the lowest level since Margaret Thatcher was ousted from office in 1990, as people became more pessimistic that the economy will slip into a recession, GfK NOP Ltd. said.

A gauge of sentiment declined 5 points from April to minus 29, the lowest since November 1990, the same month Thatcher quit as prime minister, the London-based market researcher said today, citing its survey of 2,003 people for the European Commission. All five components of the index declined.

``Most people think there's going to be a recession,'' Andy Thwaites, an analyst GfK, said in an interview. ``People are very gloomy about the economy and about the future. We've seen a sustained period of consumer confidence dropping and if that carries on, people start changing their purchasing behavior.''

Prime Minister Gordon Brown has vowed to address concerns on declining living standards after his ruling Labour Party suffered two election defeats this month. Nationwide Building Society said yesterday that house prices dropped the most since at least 1991 this month, and Bank of England Governor Mervyn King said on May 14 that the economy may contract as inflation accelerates.

Britons' confidence in the economy for the next year fell one point to minus 39, the least since records began in 1983, GfK NOP said. Consumers were also more reluctant to make major purchases, with the gauge falling 8 points to minus 32, which was also a record low.

The last time GfK's main index was at this level, the economy was in a recession and Thatcher faced a challenge to her leadership by her former colleague Michael Heseltine. He attracted enough support in a ballot of Conservative Party lawmakers to prompt a further vote and she then resigned.

Election Defeat

Brown is trying to revive Labour's fortunes, after its candidate for Parliament lost an election in Crewe and Nantwich in northern England last week. That was the Conservatives' first such victory in more than a quarter of a century.

Andrew Cooper, chief executive of pollster Populus Ltd., cautioned against drawing parallels between 1990 and Britain's current situation.

``In 1990, there were still memories of the time when Britain was an economic basket case in the 1970s and memories of the deep recession of the early 1980s,'' Cooper said in an interview. ``People had the attitude that these things happen, you batten down the hatches and live through them. The present generation really has no experience of this.''

Inflation Risk

The Bank of England kept the benchmark interest rate at 5 percent on May 8 as record oil prices pushed inflation up by the most since 2002 in April. U.K. consumers' expectations for prices over the next 12 months rose in May to the highest since August 1998, a report by the European Commission yesterday showed.

Food prices are also increasing. A typical basket of 100 grocery items cost 5.8 percent more in May that it did at the beginning of the year, a survey by Verdict, a U.K.-based research company, showed today.

Wage pressures have still shown little sign of picking up. Labor union negotiators won pay increases of a median 3.2 percent in the three months through April 30, compared with 3.5 percent in the previous quarter, a report by Industrial Relations Services, a London-based research group, showed today.

BLOOMBERG