Battered consumer confidence crashes

The GfK index of consumer confidence - a key barometer of future spending - continued its recent slide this month to its worst reading since March 2003. Appetite for major purchases dived to the lowest since December 1995 as higher mortgage costs, a stuttering housing market and the impact of the credit crunch hit demand for expensive goods.

The gloomy snapshot today raised fears of a grim festive season on the High Street and a significant slowdown in economic growth. It came on the eve of the most important shopping weekend so far this year, with little more than three weeks to go before Christmas.

Rachel Joy of GfK said: "This month we have experienced a number of factors that have made consumers wary about their financial future and the economic situation of the country.

"With petrol prices racing past £1 a litre, food prices on the increase and the prospect of higher mortgages and loan fees on the horizon resulting from the credit crunch, even the most optimistic seem to view their glass as half empty."

Retailers and households are praying for an interest rate cut next week to ease the financial stress of five rate rises since August last year to 5.75%.

However, Bank of England Governor Mervyn King yesterday dampened hope of such a move by warning rising inflation posed a serious risk to the economy. He said the outlook for the UK was "highly uncomfortable".

Fears of a housing crash intensified yesterday after building society Nationwide reported the biggest fall in property prices for 12 years while Bank of England statistics showed a dramatic fall in mortgage approvals.

A string of profits warnings from consumer goods firms this week has added to the gloom. Car dealership Pendragon, High Street jeweller Signet, which owns H Samuel and Ernest Jones, and bar firm Sports Cafe all warned profits will not be as high as hoped, while Currys owner DSG International said its future looked bleak.

Last night the US Federal Reserve warned that the world's largest economy is also slowing and added that consumers are cautious as the Christmas shopping season gets under way.