Fionnuala Earley, Nationwide’s chief economist, said: “Higher interest rates have not affected consumers’ overall confidence, but they do seem to be having an impact on their willingness to spend. The good weather in early May might have helped put consumers in a brighter mood but, people’s spending intentions responded sharply to the latest interest rate announcement; this may offer some comfort to the MPC.”
Consumer confidence climbs as Tony Blair announces his departure
Consumer confidence in May increased dramatically with the Nationwide Consumer Confidence Index rising nine points to 99 – its highest point since November 2005.
Consumers were upbeat about the economy in May and felt comfortable that things would continue to be good over the coming months. However, these sentiments do not seem to make them feel like spending. The Spending Index fell five points – the only one of the four confidence indices to fall.
Confidence moved most sharply in the week when interest rates increased and Tony Blair announced his departure date from Downing Street: spending sentiment fell sharply while overall confidence rose. All indices are compiled in partnership with TNS.
Confidence about the present situation rockets
Consumers are upbeat about the current economic and employment situation, with the Present Situation Index rising 12 points to 101 – the largest recorded rise. The last time people felt this happy about the current state of the economy was in November 2005 when the pace of economic growth was starting to pick up. People’s views on the current employment situation were a big driver behind the growth in confidence, with six in ten people (60%) believing that there are many jobs available now.
Looking forward, consumers are upbeat
Consumers are also optimistic about the future with their feelings about the economic and employment situation in six months time returning to levels seen before the base rate began to creep up. Confidence about job availability in the future helped push the Expectations Index up six points to 97, its fifth consecutive rise.
Confidence about spending – the only index to fall
A three point fall in the number of people who think that now is a good time to buy major items such as a house or car is likely to be a reflection of the impact of rising interest rates on family finances. The housing market and consumer borrowing also suggests that interest rates are beginning to bite. People’s increasingly pessimistic view about their future income could also be curtailing willingness to spend: fewer than one in four (24%) believe that their household income will be higher in six months time after a gradual decline from January’s high of 31%.
House price expectations pick up sharply in May
Views about the housing market remain upbeat. People’s expectations of future house price growth reached a new high in May: they now expect house prices to rise 4.5% over the coming six months. These views are likely to moderate over coming months as consumers see evidence of earlier interest rate rises taking hold.
