Consumer confidence improves

The Nationwide Consumer Confidence Index rose for the third consecutive month to 88.

Despite this 3 point rise, consumer confidence is still subdued and well below the levels seen during the first half of 2006. The impact of interest rates appears to be playing a part in this downbeat view. With uncertainty about future interest rate rises, confidence is unlikely to recover quickly. All indices are compiled in partnership with TNS.

For the first time in four months, consumers appear to be happier about the present economic and employment situation, with the Present Situation Index rising 3 points to 87. The increased optimism about the current state of the economy may suggest that consumers are beginning to accept that interest rate hikes are a necessary measure to avoid economic problems later on.

The future is looking brighter

Looking forward, consumers are possibly buoyed up, with Spring in the air, as they remain optimistic about the future with confidence returning to those levels seen around October 2006. The Expectations Index (how consumers feel about the economic and employment situation in six months time) rose 3 points to 89 and has risen steadily this year from its joint low of 81 seen in both August and December 2006.

Spending confidence falls sharply

Confidence about making either major or household purchases fell 11 points to 83 with the Spending Index now 23 points below its position this time last year and below its three month average of 89. The slump seen in the Spending Index suggests that consumers are not in a hurry to make either major or household purchases and may still resist attempts by retailers to raise their prices.

The proportion of consumers who think that now is a good time to buy major items such as a house or car, fell noticeably, perhaps reflecting a cooling in house price expectations. A further weakening in housing market activity - shown by fewer buyer enquiries, a slowing in mortgage approvals and a decline in the rate of house price growth - may also be leading consumers to expect the housing market to soften further.

Fionnuala Earley, Nationwide’s Chief Economist, said: “Although consumers appeared slightly more upbeat in March, the overall picture is still subdued. With uncertainty about the interest rate position, but with the risk clearly on the upside, consumers are unlikely to recover confidence in the short term.”


House price expectations moderate

Consumers’ expectations of future house price growth have moderated for a second consecutive month with consumers now expecting house prices to rise by 3.2% over the coming six months – down from 3.4% in February. This second fall is perhaps further evidence that rising interest rates are having a dampening effect on the housing market.