Lack of confidence continues into second half of 2011

• Consumers’ assessment of their present situation was little changed – it is consumers’ expectations that drove the Index down during the month

• Any substantial improvement in confidence is unlikely during the remainder of 2011

• The Spending Index fell to 73 in July and continues to lie well below its long run average of 90 points

• Over half of consumers believe it is currently a bad time to make a major purchase

• Little evidence to suggest spending on household goods tops many consumers’ shopping lists

• Consumers expect to see the value of their home fall by 0.4% over the next six months

• This could go some way towards explaining the reservations towards making major purchases at the current time

Robert Gardner, Nationwide’s Chief Economist, said:

“There was a small dip in consumer confidence in July, reflecting increased uncertainty around the outlook for the UK economy. At 49 points, the main confidence index remains well below its long-run average reading of 79.

“With the economic recovery still facing strong headwinds it is unlikely that we will see any considerable improvement in confidence in the remainder of 2011. Indeed, it may be that we see a further deterioration in August, following riots in a number of UK cities and the sharp declines seen in stock markets around the world.

“Overall, conditions for the UK economy remain challenging, especially for consumers. Figures released in July showed minimal growth in the UK economy in Q2. More recent survey data provides little evidence of a pickup in Q3. This difficult environment is being clearly reflected in the Nationwide Index. All the subindices are now close to the subdued levels prevailing at the start of the year and confidence has struggled to gain any sort of momentum in 2011.

“The Present Situation Index has been the most stable sub-index in 2011, but it has remained at extremely subdued levels by historic standards. At a reading of 23, it currently sits just six points above the all time low of 17 seen in July 2009.

“The combination of weak employment growth and wage increases that aren’t enough to keep up with the rising cost of living has acted as a dragging anchor on consumer confidence for some. The challenging labour market and high inflation are also coming through in our measures of spending sentiment. Consumers hold tight on major purchases “Throughout 2011, attitudes towards spending have hardened, with the exception of the short-lived consumer exuberance seen in May. In particular, there has been a
rise in the number of consumers who believe now is a bad time to make major purchases. With consumers continuing to expect a fall in house prices over the next six months, it is perhaps unsurprising they are expressing reservations towards making substantial
financial commitments at the present time.

“Overall, the Spending Index remains well below its long run average of 90 points. In addition to reservations towards making major purchases, this fall in sentiment suggests that consumers may also be finding it necessary to hold back on discretionary household
purchases in favour of essential items such as food and energy, which have seen a series of price rises in the past year.”

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