Consumer confidence recovers ground during August
The Nationwide Consumer Confidence Index rose by five points to 61 during August, after falling for three consecutive months.
The index now stands at a similar level to August 2009, but remains significantly below the long-run average of 83. The Expectations Index saw the biggest increase in August, rising by seven points to 84. This follows a fall of 43 points in the five months from February 2010. Consumers' faith in the present situation continued its slow path upwards, with the Present Situation Index rising by one point for the third consecutive month. Likewise, spending confidence rose during the month, rising by four points to 98 and reversing the fall seen in July.
In line with recent house price figures, consumers expressed increased pessimism towards the housing market in August. Consumers now expect the value of their home to decrease by 0.1% over the next six months - a decrease of half a percentage point from July's figure (+0.4%).
Mark Saddleton, Nationwide's head of economic and market analysis, said: "Consumers expressed greater optimism during August causing the index to recover some of the ground lost since its interim peak in February. It may be that the recent dip was a product of increased caution following the General Election as consumers assessed what direct impact a change in Government and new austerity measures would have on their individual circumstances. The main driver behind the increase in August has been an uplift in confidence towards the future situation, in particular consumer expectations of future economic circumstances. While the indicators suggest the outlook may be starting to look a little brighter, faith in the present situation remains at a low level and growth in this area will play an important role in the strength of any recovery in confidence in the coming months.
Expectations rise for the first time since February
"After reaching an all time high of 120 points in February 2010, consumers' faith in the future situation waned considerably forcing the Expectations Index down significantly by 43 points in the five months to July. This has had a strong bearing on overall confidence while faith in the present situation remained relatively stagnant over the same period. However, August has shown some renewed hope for the future among consumers. It is improved sentiment in the future economic situation and level of household income in six months' time that has helped to push the Expectations Index upwards during the month. While this is consistent with recent reports that showed Britain's economy grew at its fastest pace for nine years in the second quarter, it is perhaps surprising that there has been little change in sentiment towards the employment situation despite figures showing UK unemployment to be falling.
The future path for the Index
"Overall, August proved to be a positive month for consumer confidence following an otherwise turbulent year for the index. While there is still a long way to go before it can be said that confidence has returned, these figures are an encouraging sign that consumers may be starting to feel more upbeat as the UK continues to recover from its deepest recession since World War II. However, based on these results alone, it is difficult to say with any degree of certainty whether such optimism will remain for a sustained period of time forcing an upwards curve in confidence in the coming months. Downward pressure is likely to be placed on confidence in the shape of speculation over public spending cuts, a stuttering housing market and a difficult job market, but positive retail sales on the high street and a continued low base rate may help to stem any further falls. September's results should help to paint a clearer picture as we move into the final quarter of 2010."