Consumer confidence reaches record lows

Nia Williams

March 18, 2011

This is according to Nationwide Building Society’s Consumer Confidence Index for February 2011.

Commenting, Robert Gardner, Nationwide’s chief economist, said: “Consumer confidence continued to deteriorate in February and has now reached its lowest level in the survey’s history, superseding the previous low seen during the recession.

“A fall in expectations towards the future was the main factor driving the Index down, and consumers’ assessments of the present situation deteriorated slightly from already depressed levels. Spending confidence also fell significantly during the month.

“There are many factors that may be holding back confidence at the moment. The labour market remains fragile, with the unemployment rate still high and wage growth weak. Inflation is showing few signs of easing, and high fuel prices and the VAT increase have further eroded disposable incomes in recent months.

“More generally, the UK recovery remains sluggish and there was little positive news in February to give consumers a much needed boost. Furthermore, news that the economy shrank in the final quarter of 2010 will have done nothing to lift already dampened spirits.

“However, there have been tentative signs that the economy has begun to return to growth. Indeed, firms returning to normal after the weather-related disruption at the end of last year is likely to give a boost to activity in the first quarter of 2011. While there are still risks to the outlook, a double-dip recession remains unlikely.

“Consumers displayed increased pessimism about the current economic situation in February, with three quarters now believing it to be bad. This helped to push the Present Situation Index down to its lowest point for 18 months. This measure has struggled to gain any momentum since recovering from its low of 17 points seen in July 2009.

“Consumers have also scaled back their expectations of the future economic outlook. When sentiment improved in 2009, this was largely because consumers were feeling more positive about the future. Unfortunately, the recovery has been sluggish by historic standards, and it is likely that consumers are coming round to the view that the economy faces a slow grind higher rather than a quick return to form.

“The bleak picture we saw at the end of 2010 has so far continued into this year pushing the Index into new territory. Inflation is currently twice its 2% target and is likely to remain above-target for the remainder of the year. High inflation has led many to expect interest rate rises by the summer, which may in turn have fanned concerns about mounting pressure on household budgets. We continue to expect rates to remain on hold until the back end of 2011 which, if realised, should go some way to supporting household finances, at least in the short term.

“While we expect the recovery to get back on track in the quarters ahead, it may take a while for consumers to feel the benefits. Business investment and exports are expected to play the major role in driving the recovery but it will take time for this to feed through into stronger employment and wage growth. In the meantime, it would not be surprising to see confidence remain at a low level.”

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