Consumer confidence fell in September
Consumer confidence fell by nine points to 53 during September, reversing the gain seen in August, according to the Nationwide Consumer Confidence Index.
The index now stands at its lowest level for over a year and significantly below the long-run average of 83. The Spending Index saw the biggest fall in September, decreasing by 14 points to 85 - the lowest level this measure has reached since November 2008, bringing it below the long-run average of 92. Consumers' faith in the present situation also fell back following the small gains seen since May of this year. At 22 points the Present Situation Index now stands at the same level as December 2009. Likewise, the Expectations Index fell notably by 12 points to 73 during September to reverse the previous months' increase in sentiment.
Consumers expressed a guarded optimism towards the housing market in September, with a very marginal improvement in sentiment. Consumers now expect the value of their home to increase by 0.1% over the next six months. This compares to a fall of 0.1% predicted in August.
Martin Gahbauer, Nationwide's chief economist, said: "September saw confidence return to its downward path following what now appears to have been a temporary uplift in sentiment during August. August figures had suggested that confidence may have turned the corner following a succession of falls in the run up to and after the recent General Election. However, these gains have now been reversed following a notable drop in confidence across all main indices in September. It would seem that the pessimistic sentiments of a few months ago have been renewed and this has perhaps been driven by a realisation of the true impact of the cuts announced in the emergency Budget. The Government's impending Spending Review is likely to have a strong influence on consumer confidence in the coming weeks and we can expect the index to remain volatile until the full impact of this has been assessed.
Anxiety remains among consumers over the strength of the recovery
"In light of the UK's continued economic recovery, and the bounce in sentiment seen in August, it is perhaps surprising to see such sizable falls across all the main measures in September. However, the debate about public sector spending cuts has been heavily featured in the news over this period and we have seen expectations reigned in for both the future economic and employment situation which has helped to force this index down. The Expectations Index has now fallen by 47 points to 73 since February 2010, perhaps suggesting a growing anxiety among consumers about the strength of the recovery and their own personal finances. This index is now creeping towards the historical low of 56 points reached during the recent recession and it will need a significant shift in sentiment to reverse this downward trend.
Spending confidence knocked back
"Confidence in spending took a knock during September, which may be a cause for concern among retailers as we enter into the run up to Christmas. Recent figures from the high street showed retail sales falling during August, and it could be that consumers are now beginning to feel the pinch on their spending power, which has up to now remained resilient despite difficult economic conditions.
"Of particular note is the decrease in sentiment around spending on larger items such as a house or car. This may be a product of recent house price activity as consumers wait to see which direction prices move following a period of uncertainty in the market. The Government's Spending Review, and additional expenses incurred over the Christmas period, may also be playing on the minds of consumers as they decide whether to commit to a major purchase at present."