Confidence rises to two-year high

For the second consecutive month the Consumer Confidence Index has risen – increasing by 6 points to 80 in February. This 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, rising to 27 (its highest level since December 2008) and 115 points (the highest level since records began and more than double the level it was this time last year (56) respectively. However, confidence in spending continued to fall away during the month and dropped four points to 93 in February, matched by a 1.8% fall in retail sales between December and January.

Consumer expectations towards the future economic and employment situation both improved during the month however, 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.

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.

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%. House price expectations also rose in February, with consumers expecting the price of their house to rise by 1.5 over the next six months, compared to 1.1% in January.

Martin Gahbauer, Chief Economist, Nationwide, 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.”