Nationwide reports dip in consumer confidence

May 19, 2011
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Consumers grew more pessimistic about the outlook for the economy and spending last month, according to Britain’s biggest building society.

Swindon-based Nationwide’s index of sentiment fell two points, slipping to 43 from a revised 45 in March. Its gauge of whether now is a good time to make major purchases dropped 5 points to 62, leaving confidence levels just four points above February’s record low.

“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,” said Nationwide chief economist Robert Gardner. “It now seems fairly safe to say that the uptick we saw in March was not the beginning of any sustained resurgence.”

He added that wage growth remains weak, pointing out that inflation is roughly double annual earnings growth. This means consumers still lack the spending power to help drive the economy forward. This was echoed in April’s figures which show 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 remained at a relatively low level.

The survey also showed increased pessimism about property sales and prices. Mr Gardner said: “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 remained fairly static since last summer, he said, with little evidence to suggest that price declines will accelerate in the months ahead.

He added that 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,” he said.

Weak growth and higher inflation has been a difficult combination for confidence over the past 12 months, he said, pointing to Bank of England governor Mervyn King’s statement 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,” said Mr Gardner.

 

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