Consumer confidence falls back in December

The Nationwide Consumer Confidence Index recorded a five point decrease in December to 69 - its biggest fall since November 2008.

While the Present Situation Index remained unchanged on 20 points, the Expectations Index saw a significant drop, decreasing eight points to 101 in December. However, this index still remains high when compared to historical figures following a strong rally in 2009. The Spending Index recorded a one point fall during the month and has remained broadly stable now since September.

Expectations about house prices remained constant in December, with consumers expecting the value of their home to increase by 1% over the next six months.

Martin Gahbauer, Nationwide's chief economist, said: "The five point fall in confidence in December suggests that an element of caution may have begun to creep back into the minds of consumers over the Christmas period. This comes at the end of a positive year for the index, which gained some upwards momentum in 2009 to help claw its way up from the record low seen in January. The main driver behind this revival is likely to have been a renewed hope for the future economic situation and a belief that the worst of the recession is over. However, the looming VAT hike and other tax changes announced in the Pre-Budget Report may have impacted on confidence in December, forcing people to review their expectations for the future. Although it is still early days, these lower expectations may foreshadow a more sluggish consumer outlook in 2010 as stimulus measures are withdrawn."

Consumer expectations reined in during December following a strong rally in 2009

The Expectations Index fell back by a noticeable eight points in December but finished the year 43 points higher than where it started in January, showing a strong recovery in this area. Expectations for the future economic situation played a large role in this recovery - and in the recovery of the Consumer Confidence Index as a whole in 2009 - however, sentiment in this area fell back in December. The proportion of consumers who think the economic situation will be better in six months' time now stands at 34%, compared to 41% in November. Nonetheless, this is a vast improvement on the start of the year when this measure stood at just 17% and over half thought the economic situation would get worse (compared to 19% for December).

The proportion of people who think there will be many or some jobs available in six months' time dropped from 27% to 25% in December, but ended the year 10 percentage points higher than January. This highlights some improvement to sentiment in this area, although progress has been muted as a result of continued pessimism surrounding the UK's unemployment situation.

Consumers show mixed attitudes towards spending over the festive period

Attitudes towards spending have been upbeat in 2009, and although the Spending Index fell by one point in December, it remained above the 100 point level for an eleventh consecutive month. Such optimism can perhaps in part be credited to measures introduced by the Government in the second half of 2008 to stimulate consumer spending, which may have led to confidence returning in this sector in the months that followed. Confidence may have also been restored somewhat by consumers seeing prolonged sales on the high street through 2009 as retailers cut prices to survive the economic downturn.

While over a third (35%) of consumers believe now to be a good time to make a major purchase, the percentage of consumers who believe it is a bad time increased by four percentage points to 38% in December - perhaps reflecting concerns over the end of the stamp duty holiday and the VAT rate increase in January 2010. By contrast, the proportion of consumers that believe now to be a bad time to buy household goods fell by two percentage points to 13% in December.