LONDON (Reuters) - Thomas Cook (TCG.L), Europe's second biggest travel firm, said UK bookings had slowed as cash-strapped Britons, grappling with the government's fiscal squeeze, sacrifice their annual two weeks in the sun.
"Cumulative (summer) bookings remain ahead in most markets, although the rate of booking intake has slowed noticeably in the UK as a result of continued economic uncertainty," the company said on Tuesday.
Thomas Cook said cumulative summer bookings in Britain were 1 percent ahead of last year, sharply down from growth of 6 percent when the group last updated the market.
British consumers have been increasingly unwilling to spend as muted earnings growth and higher inflation, fuelled by January's rise in VAT (sales tax) and hikes in oil and food prices, bite into real incomes.
They are also worried about job losses and welfare reductions related to government spending cuts, as well as the prospect of higher interest rates.
Historically Britons have been reluctant to give up their hard earned summer holiday even when they are cutting back in other areas.
On Monday Peter Long, Chief Executive of Europe's biggest tour operator, TUI Travel (TT.L), which is majority-owned by German company TUI AG (TUIGn.DE), told Reuters demand for annual holidays was proving resilient.
TUI Travel will update on trading on Thursday.
Thomas Cook said cumulative summer bookings were up 4 percent in Central Europe (Germany, Austria and Switzerland), up 11 percent in Northern Europe, up 9 percent at Airlines Germany but down 1 percent in West/East Europe.
Average selling prices were up 4 percent in Britain and up 3 percent in Central Europe.
In response to the continuing tough British trading environment Thomas Cook has reduced capacity to around last year's level.
Shares in Thomas Cook, which prior to Tuesday's update had lost 39 percent of their value over the last year, were down 1.1 percent at 165 pence at 0949 GMT, valuing the business at about 1.4 billion pounds.
"We struggle to identify near-term positive catalysts for the Thomas Cook share price to move appreciably upwards," said Panmure Gordon analyst Simon French,
He is forecasting 2010-11 earnings before interest and tax EBIT.L of 397 million pounds.
Thomas Cook confirmed last month's forecast that unrest in Egypt and Tunisia would wipe around 20 million pounds off second-quarter profit.