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British consumer confidence has plummeted to its lowest level for almost five years, which will add to the downwards spiral fears for the economy.

A key indicator of future spending, the GfK index of consumer confidence, continued its recent downward trend to its lowest mark since March 2003. Indeed consumer desire to spend on major items has fallen to its lowest level since December 1995. Rising mortgage costs, a stagnating housing market and the effects of the credit crunch has hit shoppers’ confidence.

A poor festive season for retailers could mark a significant slowdown in UK economic growth, as the gloomy news came with just over three weeks to go until Christmas.

GfK’s Rachel Joy 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.”

There is an outside chance of a cut in the base rate this week, and retailers and consumers will be hoping it comes about. However, the Bank’s Governor Mervyn King said last week that inflation still posed a serious risk to the economy, with the outlook for the UK being highly uncomfortable. Against such a backdrop of words it is hard to envisage a base rate cut before February.

A number of consumer goods firms have issued profits warnings in recent days, including car dealers Pendragon, High Street jeweller Signet (owner of H Samuel and Ernest Jones), Sports Café and the owner of Currys, DSG International.

Meanwhile on the other side of the Atlantic, the US Federal Reserve has warned that the US economy is slowing and consumers are said to be cautious as shopping for Christmas begins