Consumer confidence falls in June

The Nationwide Consumer Confidence Index fell four points to 61 in June. It is likely that ongoing economic uncertainty, a weakening housing market and the higher cost of food and fuel have all contributed to the growth in negative impact on consumer sentiment.

The Present Situation Index, which measures views about the current economic and employment situation, and the Spending Index, which reflects consumer sentiment about spending on household goods and major purchases, remained static in June at 56 and 60 respectively. However, both indices stayed at their lowest level to date.

Fionnuala Earley, Nationwide’s chief economist, said: “This month’s drop in confidence is to be expected given the recent run of bad news. With reports of rising inflation rates, weaker economic growth and further falls in house prices, it is not surprising that people are feeling much less optimistic about the future. While consumers appear to be fairly relaxed about the availability of jobs, with unemployment beginning to rise, we are likely to see a change in labour market sentiment over the coming months.”

Consumers despondent about future economic situation…
There has been very little change to consumers’ views about the current situation, after last month’s sharp fall in comparison to the previous year. However, consumers have become far less upbeat about the future of the economy. More than half (53%) believe the economic situation will be worse in six months’ time – the highest number this year and 24% more than this time last year.

…leading to a shift in views on household income
Consumer sentiment about household income saw the first real signs of a shift in June. The number of consumers who think their household income will be higher in six months’ time fell to 16%. This is 5% lower than in May (21%) and more than 10% lower than this time last year (28%). The majority of consumers believe their household income in six months’ time will remain the same as it is now (69%).

Increase in spending on major purchases
The number of consumers who think now is a good time to make a major purchase such as a house or car increased to 18% in June, the highest level since July 2007. This seems counter intuitive in the current climate but may be reflecting a perception of opportunities for discounts in a buyers’ market.

In spite of this, there was a definite shift in sentiment around the purchase of household goods. Consumers appear to be tightening their belts once again as the number of people who think now is a bad time to buy white or brown goods increased from 16% to 20% in June – a 14% increase on last year.

Consumers’ expectations about house price growth over the next six months remained subdued in June but improved slightly to -3.2% from -3.5% in May.