Consumer confidence hits 15 month low as Bank chief warns of a ‘choppy’ ride ahead

UK consumer confidence continued to slide last month  according to the latest Nationwide Consumer Confidence Index Survey while in a double whammy the Bank of England Governor Mervyn King predicts a ‘choppy recovery’ for the economy

The Nationwide Consumer Confidence Index dropped to 56 in July, down from 64 in June. The Expectations Index saw the biggest fall, dropping 13 points to 76, and continued the downward trend seen since February.  The emergency budget and inflation pressures were cited by Nationwide as developments which may be constraining consumer confidence.

The survey showed consumers remain cautious despite evidence of economic recovery.  Fifty seven percent of respondents said there would be not be many/few jobs available in six months time, compared with just 24% saying there would be many/some jobs available, a similar reading to last month.

Just 23% of respondents expect the economic situation to be better in six months time, with 46% expecting it to be the same as now, and 28%
expecting it to worsen. The figures are similar to the 27%, 47% and 24% readings seen in June.

The majority of consumers predicted no change in their household income six months out, with 64% saying it would be the same, 21% lower
and 14% higher.  The 21% of people expecting lower household income is up from 15% in June.

Commenting on the data, Martin Gahbauer, Nationwide’s chief economist said:  “Consumers continued to show caution towards the strength of the economic recovery during July. The index has now seen three consecutive months of decline and this has largely been fuelled by uncertainty as to what the next six months hold.”

“July will have been a time for many consumers to reassess their individual circumstances following the Chancellor’s emergency Budget, and inflationary pressures, such as rising fuel costs, may now be leading to more negative sentiment among consumers as they start to feel the pinch on their spending power,” he added.

Meantime Bank of England chief Mervyn King warned of a  ‘choppy recovery’ as latest job figures showed a record 7.84million people in the UK are now in part time work. King said in the Bank’s Quarterly Inflation report that while inflation would remain above its 2 per cent target for longer than expected and that economic growth would be slower than expected, and also that a credit squeeze will get ever tighter,  there would still be a ‘slow and steady’ recovery. Commenting on the employment figures showing the record number of part-time workers Gerwyn Davies, public policy adviser at the Chartered Institute of Personnel and Development (CIPD) said

"This looks like yet another set of strong and encouraging figures on the surface.  However, cracks now seem to be emerging; with a considerable growth in part-time work, lower pay settlements and a slower decline in the claimant count all features of a more uncertain jobs market.  As the CIPD predicted earlier this year, the strong progress that we have seen in the first half of this year is set to stall thanks to a series of headwinds that are about to hit the jobs market.

"A larger crack will emerge when the real impact of the cuts on the public sector take effect in the autumn, with a question mark now hanging over the capacity of the private sector to fill it.  The prospect of the public sector cutbacks is now being accompanied by more uncertainty in some parts of the private sector, as wariness sets in thanks to the wider impact of both the cuts and the VAT increase.  With uncertainty creeping back into the jobs market, and with the Bank of England now lowering sharply its economic growth forecast, it is encouraging that the Bank of England have lowered their interest rate expectations.” he concluded.