A bumpy ride for consumer confidence in 2008

The last Nationwide Consumer Confidence Index of 2008 shows that confidence fell further from 51 to 47 during December. Confidence in the labour market continues to dominate the overall index and news of troubled retailers and redundancies in the motor industry are likely to have affected sentiment during the month.

Despite this, the Spending Index rose sharply during December suggesting that consumers believe that now is a good time to buy household items such as white and brown goods (for example, fridges and televisions etc). A flurry of pre-Christmas discounting seems to have improved confidence. However, recognising that now is a good time to buy may not always indicate a willingness to part with hard cash.

Fionnuala Earley, Nationwide's chief economist, said: "Consumers' confidence fell sharply in 2008, driven mainly by their sentiment about the economic and labour market situation. As the UK enters recession it is likely to be some time before we see confidence returning to levels seen in 2007. However, we are starting to see signs that consumers are preparing for the challenges they may face in 2009 and this is likely to become more evident in the coming months as people take stock of how current and future economic conditions may impact on their personal circumstances."

Spending confidence increases as high streets start discounting

During December the Spending Index rose significantly. This is puzzling given the economic situation but is likely to reflect heavy discounting on the high street. The percentage of those believing now is a good time to buy household goods increased by 13 percentage points during the month, up from 28% to 41%. Elsewhere in the Spending Index, confidence to make a major purchase such as a house or car also rose slightly. The percentage of consumers believing now is a bad time to make such a purchase fell seven percentage points to 51%, perhaps in recognition that falling house prices will help improve affordability for some.

Realistic expectations emerge on household income

Consumers finally seem to be recognising that the weakening economic situation will affect their incomes. The percentage of those believing their household income will be lower in six months time increased by three percentage points during December, up from 16% to 19%, the largest monthly change for over a year. These are the first signs that consumers are now factoring in tougher times ahead and taking a realistic approach to how the ongoing economic conditions may affect them.

Concern continues around the labour market and economy

Not surprisingly, sentiment about the economic situation remained gloomy during December. Nearly half (49%) of those questioned think that the economic situation will be worse in six months time. Views on the labour market also remained largely pessimistic with nearly two thirds (63%) believing there will be few jobs available in six months time, up from 59% in November.

Expectations about house prices over the next six months showed a marked improvement in December. Consumers now expect prices to fall by 4.9% over the next six months, compared with 5.4% in November.