Consumer confidence stabilises in October

Consumer confidence remained relatively steady during October, falling by just one point to 52 over the month, according to the Nationwide Consumer Confidence Index.

The index has now fallen in five out of the last six months and stands 32 points below its interim peak of 84 seen in February of this year.  The decrease in sentiment during October was led by continued pessimism towards the future situation, with the Expectations Index falling by four points to 70 - the lowest level this measure has reached since March 2009.  By contrast, faith in the present situation and spending both picked up during October.  Most notably, the Spending Index recovered some of the ground lost in September with an increase of six points to 92.  Likewise, the Present Situation Index rose by three points to 25 following a five point fall in September.

Consumers expressed a growing pessimism towards the housing market in October and now expect the value of their home to decrease by 0.9% over the next six months.  This compares to an increase of 0.1% predicted in September.

Martin Gahbauer, Nationwide's chief economist, said: "There was little change to overall confidence during October, which may have been a result of consumers waiting to see what the Government's Spending Review would bring.  We saw a significant drop in confidence the previous month, and the underlying anxiety around the strength and direction of the recovery appears to remain.  However, on a positive note, there are signs this month that some faith has returned in relation to the present situation and consumers' propensity to spend in the run up to Christmas.  Nevertheless, this should not be overstated as levels of optimism here remain low compared to historical figures and still well below their long-run averages.  Expectations continued to trend downwards during October and this may be due to consumers understanding that changes announced in the Spending Review will be implemented over several years rather than take effect straight away.

Expectations continue to fall

"During the field dates for the October survey there would have been heightened concern for the future among consumers in anticipation of the Government's Spending Review.  In the run up to the Review there was widespread coverage and speculation over what cuts would be announced, with the focus centring on the welfare system, benefits and pensions, and public sector employment.  This may have fed into the minds of consumers and go some way to explaining the four point decrease to the Expectations Index during the month.  This index is now at its lowest level for 18 months and has dropped a total of 50 points from its historical peak of 120 in February this year.  Perhaps surprisingly, people expressed greater hope for the future employment situation during October despite there being an expectation that the Chancellor would announce job cuts in the public sector as part of the Review.  By contrast, consumers displayed greater pessimism towards their future level of household income, helping to drive the Expectations Index down.

While spending confidence recovers some of the ground lost in September

"Following a 14 point fall to the Spending Index in September - its largest monthly fall since records began - this measure recovered some ground in October and rose by a modest six points.  The main driver behind this rise was greater optimism towards making a major purchase such as a house or car.  Improved sentiment towards spending mirrors the news that has been coming from retailers as high street sales continue to grow in the second half of this year.  The onset of the Christmas period and the imminent VAT hike in the New Year are both likely to influence this measure going forward.  However, any future desire to spend may well be offset by consumers' aptitude to spend as people take stock of any changes to their individual circumstances in the coming months."