Nationwide sees confidence soar

Andrew Goldsmith

March 3, 2010

This increase means that the Index now stands at its highest level since January 2008, and almost double the level recorded during the same period last year (41). The Present Situation and Expectations indices have also experienced some upward momentum at the start of 2010, with the indices rising to 27 and 115 points respectively. However, confidence in spending continued to fall away during the month and dropped four points to 93 in February.

Expectations about house prices rose slightly in February, with consumers expecting the value of their home to increase by 1.5% over the next six months, compared to 1.1% in January.

Martin Gahbauer, Nationwide’s chief economist, said: “Following a small dip at the end of 2009, consumers have started this year in a more optimistic fashion with February’s figures showing a surge in confidence in both the present and future situation. A strong influencing factor behind this uplift is likely to be the news that the UK has come out of its longest recession on record following six consecutive quarters of contraction beginning in 2008. By comparison, it would seem that consumers are perhaps feeling the pinch in their spending power as confidence declines in this area, and we may now be seeing the effects of the withdrawal of government driven incentives, such as the stamp duty holiday and lower VAT, impact on the index. Consumer confidence is crucial to a strong and sustainable recovery and, while confidence is likely to remain fragile for some months to come, the early signs do look positive.”

Confidence in the future situation reaches a new high…

At 115, the Expectations Index reached its highest level since records began during February, and is now more than double the level it was this time last year (56). Consumer expectations towards the future economic and employment situation both improved during the month, with 39% believing the economic situation will be better in six months’ time (compared to 36% in January), and less than half (43%) believing there will be not many or few jobs available – the first time this figure has dropped below 50% since September 2008. There is similar positive sentiment towards future household income with the number of people who think it will be the same or higher in six months’ time increasing by two percentage points to 88%.

…while confidence in the present situation outstrips last year’s figures

The Present Situation Index climbed to its highest level since December 2008 and this was largely due to improved sentiment around the current employment situation. A quarter of people now believe there to be many or some jobs available – up three percentage points from January – while the proportion who believe there to be not many or few jobs available fell by six percentage points to 61% during the month. The number of those believing the current economic situation to be bad fell back in February to 65%, its lowest level for 18 months.

Spending confidence continues to fall after strong rally in 2009

After a significant drop in January, spending confidence continued to decline in February. This can be largely credited to a fall of six percentage points to 39% during the month for the proportion of consumers who think now is a good time to buy household goods. Official figures released at the beginning of February showed retail sales in the UK to be down by 1.8% between December and January. While the continuing bad weather was a key driver behind this decline, dwindling spending confidence may have also impacted on sales at a time of the year when consumers usually show a greater propensity to spend.

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