Spending confidence falls in the run up to Christmas

Following two months of recovery, the Nationwide Consumer Confidence Index fell 9 points in November to 89. The index is now below its 3 month average of 92 and 12 points lower than at this time last year.

While the response to the Base Rate rise in November was less dramatic than to the surprise move in August, the second increase in rates is likely to have been a contributing factor to the fall in confidence. All indices are compiled in partnership with TNS.

Last month’s optimism about the future evaporated in November with the Expectations Index falling by 13 points. Consumers appear to be more concerned about the future economic and employment situation although interestingly the detailed data shows that confidence in their incomes in the next six months remains upbeat.

Confidence about the current economic and employment situation also fell back in November, although only marginally. The Present Situation Index fell 2 points to 92 bringing it back in line with its 3 month average. November has seen a shift in the proportion of consumers who now have a more definitive idea of whether they view the current economic and employment situation as ‘good’ or ‘bad’ as they move out of the ‘neutral’ category.

Confidence about spending falls to new low

The fall in spending confidence has meant that the Spending Index has fallen to a new low of 90, suggesting that the Base Rate rise, higher utility prices and petrol prices have had a dramatic impact on consumers’ desire to spend. The index fell 3 points in November and is 22 points lower than a year ago and consequently is below its 3 month average of 94.

The Base Rate rise had an immediate effect on what consumers think about the current economic and employment situation as well as their desire to spend. Despite the immediate fall, the following week consumer confidence in the economy recovered although their willingness to spend remained subdued.

Fionnuala Earley, Nationwide’s Group Economist, said: “Consumer confidence has again fallen sharply following the Bank of England’s decision to increase the Base Rate and consumers now have to face up to the impact of two rate increases in the space of four months. With dissent amongst members of the MPC, it is unsurprising that consumers are uncertain as well and with Christmas approaching the MPC will look closely at consumers’ confidence, especially with ongoing concerns about other calls on their income.”

House price expectations improve

Consumers’ expectations of future house prices fell 1% in November to 2.9%. This moderation in house price expectations is not a surprise given the rate rise as current and potential home owners evaluate their financial position before investing in bricks and mortar.