Nationwide: all four measures of consumer confidence fall in August

05 September 2007
According to the Nationwide Consumer Confidence Index, August saw declines in consumer confidence across the board in the UK.

This did not come as a big surprise, following the five interest rates of the last year. However, it marks the first decline in all four measures of consumer confidence since December 2006, with the main Index falling two points.

Nationwide's Chief Economist, Fionnuala Earley, cited the interest rate increases as the major reason for the downturn. “It now seems clears that consumers are taking this to heart in their spending intentions,” she said.

The Present Situation Index, which denotes consumer sentiment about the current economic and employment situation, fell two points to 96, while the Expectations Index, which shows how consumers feel about the economic and employment situation six months on, fell four points. Almost one in three people indicated a negative feeling about the number of jobs that would be available in the future compared with 26 per cent in July.

Consumers' willingness to spend, reflected in The Spending Index, took the hardest hit, falling seven points to just two points above the all-time low of 77 in December 2006. Just 15 per cent believe it is now a good time to purchase major items such as cars and houses compared with 21 per cent in the previous month. The Index shows that consumers expect house prices to rise 3.8 per cent in the next six months, up from 2.7 per cent in July. However, the three-month moving average has weakened to 3.1 per cent from 3.4 per cent.

Other factors may also be adding to consumer concerns. "Recent events such as the floods and the turmoil in the financial markets may also be having something of an impact on their sentiment,” said Ms Earley.

Interestingly, the number of consumers concerned that their income would be lower in six months fell, despite fears of a worsening labour market.

Ms Earley foresaw another bright spot on the horizon for UK consumers. “One bit of good news for consumers is that the unexpectedly large fall in inflation, along with financial market unrest, means that it is now much less likely that the MPC (the Monetary Policy Committee) will feel a further hike in interest rates is necessary," she said.

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