Consumer confidence falls back by four points in June

Consumer confidence fell four points in June, according to the latest Nationwide Consumer Confidence Index.

Mark Saddleton, Nationwide's Head of Economic and Market Analysis, said: "Confidence returned to a more subdued level in June as the Index again failed to build any sustained momentum to lift it from its current low level.  This follows on from a substantial uptick of 11 points seen in May, and demonstrates that consumer sentiment was notably affected by the extended bank holiday season, warm weather and the Royal Wedding during that period.  By contrast, there was less for consumers to cheer in June and so we see the Index fall back to reduce the gains made in the previous month.  At 51 points, the Index now stands 11 points lower than at the same time last year, and 28 points below its long-run average.

"It continues to be consumers' expectations towards the future situation which is primarily influencing the direction of the Index month-on-month.  In June, a seven point fall in the Expectations Index had a dampening effect on the overall measure of confidence.  This fall was mainly attributable to changes in perceptions of the general economic outlook rather than the future employment situation.

Confidence showing stability

"After a substantial fall in confidence in the 12 months to February 2011 - when the Index reached a record low of 41 points - the Index appears to have found some stability, and confidence is now at a similar level to the start of the year.  It may be that we begin to see some positive movement in the Index if the economic recovery starts to make some headway in the second half of the year.  However, it is unlikely that we will see a significant change in confidence while the recovery struggles to develop momentum.

"The Present Situation Index continues to be the most stable of all the indices and recorded no change in June. From this it is apparent that consumers are still feeling downbeat about their current situation.   At the same time, the Expectations Index sits just three points higher than at the start of the year.  At 70 points this Index remains below its long-run average (88), but it is perhaps promising that this measure has recovered some ground since its historic low of 54 points seen in February of this year.

Consumers lacking spending power

"Consumers are still facing challenging conditions with high inflation, fuel prices and unemployment weighing down on household budgets and sentiment.  Combined with weak wage growth, spending power continues to be eroded and placed under significant pressure making it difficult for consumers to drive the recovery forward.  With this in mind, it is not surprising that sentiment towards making either major or household purchases dipped slightly in June, indicating that consumers are feeling wary of taking on more debt or eating into their savings for big ticket purchases.

"There are signs that the weakness of consumer spending power is beginning to exert downward pressure on prices in the High Street, and better than expected inflation figures for June give hope that there may be some respite for consumers ahead.  Nonetheless, with food, energy and commodity prices still rising, it will be difficult for inflation to continue on this downward trend and it may still be some time before it returns to the Bank of England's 2% target."