UK consumer confidence continues to fall

The Nationwide Consumer Confidence Index fell four points to 81 in January - its lowest level since the survey began.

Equity market volatility and a weaker exchange rate may have further affected consumer sentiment, which is already feeling the impact of higher food and oil prices, as well as ongoing economic uncertainty.

Consumer sentiment about the economic and employment situation and their income in six months time, reflected in the Expectations Index, shifted in January. The index fell four points from 83 to 79. This was largely driven by a lack of confidence in the number of future jobs available.

The Present Situation Index (how consumers feel about the current economic and employment situation) fell five points to 83 (from 88 in December), reflecting consumers increased gloom about the current state of the economy. In spite of this, the Spending Index (consumers’ willingness to spend) remained stable in January. However, at 68, it’s still considerably lower than the same time last year (90 in January 2007).

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. Nationwide’s monthly survey is compiled in partnership with TNS.

Martin Gahbauer, Nationwide’s senior economist, said: “The continued downward trend in consumer confidence in January is not unexpected in light of current uncertainties about the economic outlook. Sharp falls in share prices, the rising cost of essential items and a weak exchange rate have combined to negatively impact consumer sentiment, which could be a reason for the increased pessimism around the future economic and employment situation. The expected rate cut in February may boost sentiment in the short-term but it will be some time before consumer confidence is back to the levels reported a year ago.”

The future outlook is not rosy

Consumers appear to be more pessimistic about the future labour market and it is this that has influenced falls in expectations the most. The number of people who are positive about the employment situation in six months time fell almost 10% to 36% in January (down from 44% in December). The number of people who are expecting the economic situation to be worse in six months time increased slightly from 42% in December to 44% in January. This generally negative future outlook does not appear to have impacted consumers’ future income expectations – the majority of people believe their household income will either stay the same or increase in six months time (88%).

Confidence around household spending rises

Consumer sentiment around spending on household goods increased despite a downturn in the Expectations Index. 44% of respondents think now is a good time to buy these items compared to 35% in December. This willingness to spend may be a result of the heavy discounting imposed by retailers at the end of December and into early January.

House price expectations low

Expectations of house price growth continued to fall in January. Consumers expect house prices to decrease by -0.2% over the next six months, down from a projected increased of 0.7% in December. This is not unexpected and is probably a reflection of widespread reports and resulting media coverage of a slowdown in the housing market.