Falling UK consumer confidence may level out
In December 2005, the UK 'Nationwide Consumer Confidence Index' (compiled in partnership with TNS) fell back by 5 points after a record 9 point rise in November. But while overall confidence is above the lows recorded in autumn, a three month rolling average suggests that the steady decline in confidence seen since spring 2005 may now be bottoming out.
Looking forward, consumers appear more optimistic with 80% expecting their family finances to be either the same or better in 2006 than they were in 2005. Although expectations for the future are fairly upbeat compared to recent months, they are less rosy than in early summer when the combined poor performance of retailers and the London bombings seemed to depress the spirit of the nation.
Consumer sentiments seem to have been particularly cheerless in the run up to Christmas when Nationwide's figures showed that people's confidence in the present economic situation had reached its lowest level on record. December's decline in all four of the indices measured echoed a similar fall seen the year before in three of the four measures. This suggests that, for many, the run up to Christmas is not necessarily a season of good cheer.
The UK's falling GDP According to Stuart Bernau, Nationwide's executive director, "The gloomy view among consumers is perhaps not surprising given that over the last 12 months the UK's GDP (gross domestic product) has almost halved. It also suggests that, as we approached the end of the year, people may have reappraised their situation and become more realistic about the future. But, with the speculation of a fall in interest rates and recent figures showing that the appetite for new debt has fallen to its lowest level for 11 years, we may begin to see a slight shift in consumers' attitudes."
Less optimism In addition to the main Nationwide Consumer Confidence Index, the building society tracks three other indices:
- Present Situation Index The Present Situation Index fell by 10 points to 91 in December 2005 (its lowest ever level). The 10 point fall follows a similar rise the previous month, returning the index to its longer-term downward trend. Consumers' view of the current economic situation appeared downbeat, with a fall in the number of people considering it to be "good", and an increase in those regarding it as "normal". Their view of the employment situation also appears subdued; in December 2004, 69% of consumers were positive about the number of jobs available compared to only 54% in December 2005.
- Expectations Index The Expectations Index fell by 2 points to 99, and expectations continue to be well below the buoyant levels reached in spring 2005. For the third consecutive month, only 45% of people interviewed were positive about the number of jobs available in 6 months time, which was 13 points lower than one year before.
- Spending Index The Spending Index saw its biggest ever fall, dropping 18 points to 103. A similarly large fall (12 points) was seen in December 2004 and was followed by a bounce back the following month. Nationwide's figures for both December 2004 and December 2005 showed that people usually view December as a particularly bad month to buy household goods such as fridges or washing machines (preferring to wait for the January sales), and an equally bad time to make major purchases such as a house or car, as they focus instead on shopping for Christmas. This tendency may, however, prove to be a seasonal trend, and Nationwide expects the index to regain some of its previous momentum as it did in January 2005.