Tax rise fears hit confidence

Nationwide said its consumer confidence index dropped by five points to 69 during the month, the biggest slide since November 2008.

The fall was driven by people becoming more pessimistic about the future economic situation, with only 34 per cent expecting it to be better in six months' time, down from 41 per cent in November.

The group said the increase in VAT back to 17.5 per cent from the beginning of this month, as well as other tax changes announced in the Pre-Budget Report, were also likely to have impacted on people's confidence and made them reassess their expectations for the future.

Overall, the expectations index fell by eight points during the month, although at 101 it remained well up on the record low of 58 which it fell to in January last year.

Martin Gahbauer, Nationwide's chief economist, said: "The five-point fall in confidence in December suggests that an element of caution may have begun to creep back into the minds of consumers.

"Although it is still early days, these lower expectations may foreshadow a more sluggish consumer outlook in 2010."