Consumer confidence up in December
Consumer confidence picked up slightly in December after three months of falls had forced it to a near historical low in November. December's uplift reversed the fall seen the previous month but, on 53 points, still leaves the Index substantially below its long-run average of 81. Confidence in the Expectations and Spending indices were the key drivers behind December's increase. All measures still remain at relatively low levels and below their long-run averages. However, at 90 points, the Spending Index does display some sign of resilience in what continues to be a downbeat time for overall confidence.
Consumers continued to express a degree of pessimism towards the housing market in December and now expect the value of their home to decrease by 0.9% over the next six months. This compares to a decrease of 1.4% predicted in November.
Robert Gardner, Nationwide's chief economist, said: "The December survey suggests that consumers were feeling a little more upbeat as we approached the New Year. This ended the pattern of three consecutive monthly declines that had been in place since the summer, and in the process stopped the Index reaching the trough seen during the recession. While the up-tick is encouraging, household confidence nevertheless remains subdued, reflecting ongoing uncertainty about the economic outlook.
"Over the course of 2010 we saw the Consumer Confidence Index fall by 24 points, driven largely by increased pessimism about the future state of the UK's economic and employment situation. Expectations continued to be a key driver in December, this time in a more favourable direction, and perhaps provide some hope that the recovery will gain momentum in 2011.
Expectations continue to shape confidence...
"There were increases across all the main measures which feed into the Index in December. A small improvement in sentiment towards the present situation left this index at a similar level to 12 months ago, continuing a fairly static trend over the same period. However, a more noticeable change was seen in the Expectations Index. At 73 points, it reached its highest level for three months - a shift which can be attributed more to a decrease in pessimism rather than consumers believing that the economic and employment situation will be significantly better in six months' time.
...as do spending attitudes in December
"December also saw consumers becoming slightly more confident about spending. In particular, there was a significant increase in the percentage of consumers who thought it was a good time to buy household goods. A key contributing factor may have been knowledge of the VAT rate rise, which would have been on the minds of many consumers during the survey's field dates. Some consumers may have decided to bring forward purchases, rather than risk paying more for them by waiting until the New Year. As a result, we could see a reversal of this measure in January's figures.
"Despite fears over employment, consumer attitudes towards spending remained fairly buoyant over the course of 2010. This is consistent with retail figures, which have shown consumers continuing to spend throughout much of last year.
"Over the course of the next few months it should become clearer as to what impact, if any, the increased rate of VAT has had on attitudes in this area. If consumers decide to tighten their belts, we could begin to see a noticeable shift towards people saving more. In December, some components of the Nationwide Savings Index suggested that consumers were attaching a slightly lower importance to current savings, but that they were likely to save more in future. Again, this could be related to the timing of VAT changes, and we will be closely watching how peoples' attitudes shift in the period ahead."