Consumer confidence drops to lowest level for 15 months

The pound continued its retreat from recent highs as investors are increasingly nervous about the state of the world economy and consumer confidence in the UK fell to 14 month lows.

The pound was down another cent against the dollar at $1.5793 in morning deals, having fallen as much as two cents at one point yesterday.

According to the Nationwide survey, consumer confidence fell for the third consecutive month in July and now stands at a similar level to May 2009.

Martin Gahbauer, Nationwide's chief economist, said: 'There appears to be a growing concern among consumers as to their level of disposable income in the months ahead.'

He said June’s emergency budget and inflationary pressures such as rising food and fuel costs 'may now be leading to more negative sentiment among consumers as they start to feel the pinch on their spending power.'

The recent downbeat results of house price surveys also took their toll as the survey found consumers now expect the value of their home to increase by just 0.4% over the next six months, down from more than 1% in June.

Last night US interest rate setters downgraded their forecasts for US growth and made only symbolic moves to help shore up the world's largest economy. There was more downbeat data in China this morning suggesting the pace of growth there is slowing, adding to investor nervousness and prompting investors to move back to the safety of the dollar.

At 10.30, the Bank of England will take the red pencil to its growth forecasts in today's quarterly inflation report as a result of the swingeing cuts planned by the government and a recent run of downbeat data.