Little change to consumer confidence in April
Consumer confidence remained subdued in April and continues to hover precariously close to the record low seen in February, according to the Nationwide Consumer Confidence Index.
Robert Gardner, Nationwide's chief economist, said: "At 43, the Index stands some 32 points lower than at the same stage last year, and 37 points below its long-run average. Clearly, consumers are still feeling downbeat about the current situation and there is little to suggest that they expect things to improve much over the coming months. However, the data does suggest a degree of stability, with only small movements seen across the various measures in April.
"The past 12 months have seen confidence progressively fall back towards the lows recorded during the recession. It now seems fairly safe to say that the up tick we saw in March was not the beginning of any sustained resurgence in confidence. It may be some time yet before we begin to see this emerge.
Fears of a double-dip recession dispelled...
"Recent figures showing that the economy returned to growth in the first quarter of 2011 helped allay fears that the UK is heading back into recession. The increase was driven by stronger performance in the manufacturing and service sectors and served to reverse the fall seen in the fourth quarter of last year. While positive, the rebound in growth was muted and clearly did little to act as a positive boost to confidence in April.
"Weak growth and higher inflation has been a difficult combination for confidence over the past twelve months. At the release of the Bank of England's Inflation Report, Mervyn King expressed familiar sentiments - namely that UK growth is likely to be weaker and inflation higher in the months ahead than had previously been expected. If this proves to be correct we may begin to see further downward pressure on the Index before the economic climate starts to brighten.
...but pressures remain on consumer spending
"Labour market conditions play a key role in determining consumer sentiment and behaviour, and so far developments have been mixed in 2011.
"In the quarter to April 2011 unemployment fell for the first time since last autumn. Although, this came on the back of unemployment reaching a 17 year high in the three months to January.
"At the same time, wage growth remains weak. Inflation is roughly double annual earnings growth, meaning that consumers still lack the spending power to help drive the economy forward. This is echoed in April's data. The Spending Index fell by five points - mainly driven by lower confidence towards major purchases such as a house or car - while sentiment towards future household income remains at a relatively low level.
Consumers remain cautious about the future of the housing market
"Consumers' expectations towards the future of the housing market remained in negative territory for the seventh consecutive month in April. Consumers expect the value of their homes to fall by 1.1% over the next six months.
"The housing market has now remained fairly static since last summer. There is still little evidence to suggest that price declines will accelerate in the months ahead, while a strong rebound in the market remains unlikely as the recovery is still expected to remain modest by historic standards. In our view, the most likely outcome is that house prices will continue to move sideways or drift modestly lower through the remainder of 2011."