UK consumer confidence falls

The Nationwide Consumer Confidence Index fell in June for the first time since December 2006. The fall reversed half of the dramatic rise in confidence recorded in May.

The Present Situation Index (how consumers feel about the current economic and employment situation) and Expectations Index (how consumers feel about the economic and employment situation in six months time) also fell in June. The Spending Index (consumer’s propensity to spend) was the only index to increase, rising two points in the month, but remains broadly flat in comparison to the previous six months.

The Present Situation Index fell from 101 in May to 98 in June following three months of consecutive rises but remains nine points higher than this time last year. The Expectations Index fell for the first time in six months to 93 and is now well below the level at this time last year.

The UK Nationwide Consumer Confidence Index uses a similar methodology to that of the US Conference Board, the most highly regarded Consumer Confidence Index in the US, widely acknowledged as a key US economic indicator. The monthly survey is compiled in partnership with TNS.

Fionnuala Earley, Nationwide’s Chief Economist, said: “The fall in confidence in June reflects some weakening sentiment about the economy and jobs, both now and in the future. Higher interest rates are likely to be a major factor behind this as consumers recognise their impact on the wider economy as well as on their own pockets. Spending confidence ticked up very slightly in June but overall it is significantly lower than this time last year. It now seems likely that rates will rise in July with a significant risk of a further increase in the autumn and we expect to see consumers tightening their belts in the months to come.”

Looking forward, consumers are slightly subdued

Consumers’ outlook for the next six months is fairly subdued and much lower than at this time last year. This is driven mainly by a less optimistic feeling about the future economic situation. More people now feel negative about the future economic situation, whilst the number of people who are positive about the future economic situation fell marginally in June from 15% to 13%.

Confidence about spending wobbly

June saw a complete reversal in which indices rose and which fell. In May, the Spending Index was the only Index to fall whilst in June, it was the only Index to rise. Spending confidence has been volatile but it can be affected by the season so, despite confidence during the month recovering slowly, the overall trend is down, reinforcing the suggestion that the latest series of interest rate hikes is now taking its toll.

House price expectations moderate in June

As expected, recent interest rate rises have appeared to impact on consumers’ expectations of future house prices. Peoples’ expectations of house price growth have become more realistic, falling to 2.9% after reaching a high of 4.5% in May. Moving forward, we anticipate some slackening in the housing market as rising interest rates affect affordability.