UK consumer confidence falls further

The Nationwide Consumer Confidence Index fell to a new low in February. The index fell three points to 78 in February driven mainly by weakened confidence in the current economic situation.

The Present Situation Index (how consumers feel about the current economic and employment situation) saw the biggest fall of the four indices, from 83 in January to 76 in February. This was driven by a sharp change in sentiment about current economic conditions. The proportion of consumers thinking that current economic conditions are bad has increased from a quarter to a third. In contrast, consumers’ feelings about the current job situation remain virtually unchanged on the month. While there does seem to have been a small upward trend in the proportion thinking that there are fewer jobs available since the autumn, labour market sentiment is still much better than at this time last year.

The Expectations Index, which reflects consumers’ feelings about the economic and employment situation and their income in six months time, was the only index not to deteriorate in February. The index remained static at 79, but comparisons with this time last year, when the index stood at 86, do reflect the overall weakening in sentiment seen in the other indices. This is not surprising given the larger current uncertainties in the macro economy.

The Spending Index (consumers’ willingness to spend) fell four points to 64 in February. Just 11% of consumers are confident that now is a good time to make such a purchase – down from 23% at the same time last year. This index has consistently been below 70 since November 2007, which could reflect the effect of the rising price of credit since the shock to the financial markets in the autumn. However, with a slower housing market and greater uncertainty about future economic conditions, on top of the continuing squeeze on household finances from rising food and fuel prices, weaker consumer spending expectations are not surprising.

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 is to be expected given the effect of higher food and fuel costs on people’s pockets and the tightening of the availability of credit. In addition, growing uncertainty about future economic conditions is also likely to have affected consumers’ overall sentiment. Despite this, consumers remain relatively positive about their employment situation both now and in six months time. It is perhaps too early for the base rate reduction at the beginning of February to have had any effect, but it is unlikely in current conditions that consumer confidence will return to the highs of 2007.”

Consumers positive about employment despite economic uncertainty

Looking forward, consumers’ feelings about the economic and employment situation in six months time (reflected in the Expectations Index) are worse than at this time last year. This fall in confidence is driven by feelings about the economy rather than the job situation. More than half of consumers surveyed (53% believe there are some or many jobs available at present and over one third (39%) think this will also be the case in six months time. It is this sentiment around the future employment situation that has supported the Expectations Index (the only index not to see a fall in February). The positivity around jobs would also seem to be key to understanding the resilience of consumers’ confidence in their household finances. In spite of greater economic uncertainty, 87% think that their household income will be the same or better in six month’s time.

Reluctance to splash out on major purchases

The number of people who are confident about buying a major item such as a house or car has been falling since December 2007. Just 11% of consumers are confident that now is a good time to make such a purchase – down from 23% at the same time last year. This is likely to be affected by weaker housing market indicators and the associated fall in consumers’ house price expectations as well as the tightening of the availability of credit.