New Consumer Confidence Index Shows Cautious Rise

Despite July's terrorist activities, the newly launched Nationwide Consumer Confidence Index shows an upturn in confidence in the UK, following sharp falls in May and June. The Index, developed by TNS, uses the same methodology as the renowned US Conference Board's Index.

The new Index, based on 1,000 nationally representative interviews each month, measures views of the general economic situation and employment conditions, as well as personal expectations for now and six months' time. It uses 100 as a baseline figure: this equates to the level of consumer confidence in May 2004, when Nationwide began collecting the data. All figures reflect an increase or decrease in confidence in relation to this benchmark.

After a low of 95 in May, the index now stands at 101, the same point as in May and June 2004, but still at its second lowest point this year. Fears about a downturn in the economy appear to have lessened, possibly helped by the prospect of a cut in interest rates. Nationwide forecasts a 90% probability that the Bank of England will cut interest rates this Thursday. In addition, there has been recent positive data about retail sales and a pick-up in the housing market.

Four of the five components that make up the Index rose in July. Of these, the Current Employment Situation and Employment Outlook saw the biggest rises: the proportion of people feeling positive about each measure rose by 8% and 7% respectively. The Consumer Spending index also rose - to its second highest level since September 2004. The one measure to fall, Household Income Outlook, decreased by just 1%.

The fall in confidence in May and June was driven by pessimism among consumers - highlighted by the Expectations Index (Chart 3). Confidence in the Present Situation was more stable (Chart 2). This month, consumers are more optimisitc - for example, predicting a house price growth of 2% in the next six months, up from 1.5% the previous month.

For more details see www.nationwide.co.uk/consumer_confidence .

All articles 2006-23 written and edited by Mel Crowther and/or Nick Thomas, 2024- by Nick Thomas, unless otherwise stated.

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