The economic and labour market situation, both now and in the future are the major reasons for the continued fall in confidence.
The Present Situation and Expectations indices also fell to 23 and 51 respectively. However, following the steep increase in December, the Spending Index remained static at 83 during the month, perhaps still supported by price reductions on the high street and the latest cut in the Bank Rate.
Fionnuala Earley, Nationwide’s chief economist, said: “It is no surprise that consumer confidence weakened again in January, given official figures now show the UK fell into recession at the end of 2008.
“Growing concerns about the economy have been added to by further reports of job losses and this is clearly affecting consumers’ views of the present and future economic and employment situation. Over the coming months we expect consumers to remain cautious as they take stock of how these economic conditions will impact on them and we would not expect to see a significant improvement in confidence until there is greater certainty about economic recovery.”
Of those questioned during January, 82% believed the current economic situation to be bad compared with just a quarter (25%) during the same month in 2008. More than two-thirds (67%) now think there will be few jobs available in six months’ time, double the amount of those believing this in January 2008 (32%). While these figures make grim reading, they are by no means unexpected given the current economic climate.
Frozen credit markets, the weakening housing market, an increase in redundancies and a number of high-profile firms facing administration have all been instrumental in eroding confidence in the economic and employment situation.
A turn-around in economic conditions is unlikely to happen very soon, but actions taken by the Bank of England and the Treasury could begin to restore stability and confidence to the banking sector.
In addition, cuts in interest rates and falling fuel and food costs are good news for consumers and might begin to make them feel better. However, with bigger things on their minds, these are unlikely to have a significant impact on overall confidence in the short term.
While overall confidence has been falling, the Spending Index has bucked the trend and tracked upwards for the last six months. At 83, it is now 46% higher than this time last year.
This is out of line with other data which suggests consumers would be tightening their belts. However, with the significant falls in the price of major purchases such as cars or houses, this may be reflecting their recognition that bargains are available if they are in a position to buy.
A third of people questioned in January 2009 believe that now is a good time to make a major purchase such as a house or car, compared to 13% in the same month last year. Half of consumers believe now is a good time to purchase white or brown goods (fridges, TVs etc) compared to 44% in January 2008.
Expectations about house prices over the next six months decreased in January. Consumers now expect prices to fall by 6.2% over the next six months, compared with 4.9% in December.
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