But spending confidence hints at stronger retail sales
*The Nationwide Consumer Confidence Index fell by 2 points in October to 92, a new low
*The main index has fallen by 16 per cent over the last 6 months
*Nationwide’s Spending Index suggests retail sales will improve
*Consumers increasingly confident of house price growth
*Confidence falls for third consecutive month
The fall was driven by fading confidence in the economy and the labour market. The index has now fallen for three consecutive months and by 17 points since April. The longer term trend is also down, with the 3-month average falling from 98.3 to 95.3, indicating a significant weakening in consumer sentiment.
Stuart Bernau, Nationwide’s executive director, said: “After three consecutive months of falls, consumers continue to be gloomy. The main index reached another new low in October, with consumers’ confidence in current conditions particularly badly hit.
“The index peaked in the spring, but since April a series of bad news stories appear to have hit confidence. Job losses at Rover, the London attacks in July, low house price growth and most recently higher petrol prices have all contributed to a summer of gloom which is threatening to extend through the autumn months.
“However, recent positive news about both the number of housing transactions and house price inflation, as well as retail sales, all give indications that better times may lie ahead. The Nationwide Spending Index is a good indicator of retail sales and on the basis of that we expect October’s sales figures to show another rise.”
Confidence in the present falls
While consumers’ confidence in the future remained unchanged from last month’s low of 91, confidence in current conditions fell by 5 points to a new low of 93.
Trends in the expectations index appear to lead movements in the present situation and main indices by one to two months. If the expectations index has now bottomed out, we may begin to see consumer confidence stabilise or even improve over the coming months.
Spending index tracks retail sales data
Despite falling confidence, the spending index has been resilient over recent months and rose by three points to 112 in October. In 12 of the last 16 months the spending index and official retail sales figures have moved in the same direction. With the upturn in the Nationwide number we might expect the retail sales figures for October to be more positive.
Consumers more optimistic about house prices
October’s numbers suggest there are signs that consumers’ confidence in the housing market is returning. 41 per cent of people think that house prices will rise over the next six months, the highest proportion since August 2004, when the annual rate of house price inflation stood at 18.9 per cent. Consequently, the Consumers’ House Price Forecast has risen to 2.9 per cent, from 2.1per cent last month.
It is likely that recent positive news has boosted confidence in the housing market. The number of mortgage approvals has been creeping up all year and reached 107,000 in September, the highest figure for over a year. Other reports have suggested more positive house price growth, and this was confirmed by the Nationwide House Price index last week.
Nationwide’s MPC Forecast for 10 November
The Monetary Policy Committee (MPC) will be interested to see weak overall consumer confidence alongside greater optimism about house prices. Recent hawkish speeches by MPC members suggest they are currently placing greater emphasis on inflationary pressures, making it even less likely that base rates will move in November.
