Summer sun fails to warm consumer confidence

The Nationwide Consumer Confidence Index fell by 11 points to 51 in July. Overall consumer confidence is 18% lower than this time last month and 46% lower than a year ago. These are the largest recorded falls in the index so far. More gloomy economic data, further falls in house prices, news of job losses and yet more increases in the cost of living on the horizon are likely to have contributed to the substantial drop in confidence this month.

The Present Situation Index, which measures views about the current economic and employment situation, and the Expectations Index, which reflects sentiment about the economy, labour market and household income over the next six months, fell by 18% and 15% respectively. The Spending Index, which reflects views about spending on household goods and major purchases, also dropped by 11% in the month bringing the index level to 54.

Fionnuala Earley, Nationwide's chief economist, said: "The continuing downward trend in consumer confidence is not surprising given the recent batch of poor economic data. Talk of the increasing chances of a recession, more weakening in the housing market and the continuing rise of food and energy costs will have further dented confidence as will reports of job losses. Falling oil prices and lower fixed mortgage rates offer some good news, but a cut in the bank base rate is still unlikely this summer."

Sentiment about the current and future economic situation worsens

Consumers' feelings about the current economic situation deteriorated in July following a two-month period of relative stability. After a 9 percentage point increase from the previous month, almost two thirds (61%) of people now believe that the current economic situation is bad and 85% believe that the situation will be the same or worse in six months' time.

Optimism about the future employment situation fades

Sentiment about the future employment situation weakened in July, probably brought on by recent news of redundancies in the construction and financial sectors. The proportion of consumers believing there will be few jobs available in six months' time increased sharply in July to 42%, up from 34% in June and the largest monthly increase since the start of the year.

Mixed views on spending

The majority of people (64%) still believe that now is a bad time to purchase major goods such as a house or car but views on purchasing white and brown goods i.e. fridges, televisions etc, are more mixed. Despite a gradual shift in balance, more people (25%) still believe now is a good time to buy these household goods than a bad time (21%). However, the majority of consumers (51%) are still neutral, perhaps soothed by retailers' heavy discounting.

Consumers' expectations about house price growth over the next six months decreased, with the Nationwide House Price Expectations index falling from -3.2% in June to -4.8% in July.