Consumer confidence remains stable

Nationwide Consumer Confidence Index recorded a slight increase of one point in July. Overall, sentiment remained stable. While the Present Situation Index fell one point, this was countered by the Future Expectations Index which increased by one point. The most significant changes in consumer confidence this month are that confidence in spending has fallen and that for the first time for over a year, consumers expect the value of their homes to rise over the next six months.

Martin Gahbauer, Nationwide's chief economist, said: "Consumer confidence remained broadly stable in July, with limited overall change in sentiment from the previous month. The significance of this stability is that consumers appear to be remaining cautious, but not panicked by the economic climate. This lack of volatility is crucial for the economy to recover and there are clear signs that consumers think some degree of recovery has either begun or is expected in the coming six months. Consumers might have been reassured by reports that the housing market may be starting to recover and manufacturing output is no longer falling as rapidly as it was a few months ago. Only 21% of people believe the economy will be worse than today in six months time. This is a dramatic improvement from the start of 2009 when this figure was 53%."

Reduction in belief that now is a good time for spending...

The largely static picture of this month's Consumer Confidence Index, belies a couple of key changes. In particular, confidence in making a large purchase fell in July. The percentage of people believing now is a good time to buy a major item, such as a house or car, has decreased from 40% in June to 35% in July. However, in comparison with this time last year, confidence in spending is strong, when only 17% of people felt it was a good time to make a major purchase

.... but expectations about house prices are at the highest level for 19 months...

An explanation for the recent fall in spending confidence could be that consumers feel that the best of the bargains have already been had. For the first time in over a year, consumers expect that the price of their house will rise in the next six months. Consumers are forecasting a rise of 0.5% in the value of their homes and this is the highest expectation since December 2007. There have been signs that house prices may be stabilising or even increasing, and this has combined with announcements by the car manufacturing sector that the price of new cars will increase. These factors may have slightly dampened the belief that now is a good time to make a large purchase, as prices would appear to be rising again. In addition, retail sales figures show that June was a strong month, which could indicate that during July consumers were careful to limit their spending

....yet there is uncertainty about the employment situation

During July, there was a significant decline in confidence in the UK's employment situation. 74% of people think there are few jobs available currently and 60% of people believe there will be few jobs available in six months time. Both of these figures have increased 6% compared with June. This rise in pessimism may be associated with recent large scale redundancies as well as news that a large number of people have been affected by redundancy or know someone who has been made redundant.