Consumer confidence hits all-time low

Latest consumer confidence data from the Nationwide Building Society shows the credit crunch having a major impact - the Nationwide Consumer Confidence Index in April hitting its lowest point since the Index was first compiled back in May 2004.

The Index fell by seven points in the month, bringing the level to 70; 22% lower than April last year. The biggest factor behind the drop in confidence was dwindling consumer sentiment about the economic situation since last autumn.

All four measures of confidence dropped in April. The biggest shift was in consumer sentiment about the current economic situation, which fell nine points to 65. Meanwhile, consumer sentiment about the economic and employment situation and their income in six months time (the Expectations Index) fell for the first time this year from 79 to 74 and consumer intention to spend on household goods and major purchases (Spending Index) fell two points to 65.

Fionnuala Earley, Nationwide's chief economist, said: "The cut in interest rates in April did little to lift consumer spirits. Food and fuel prices remain high and, with house prices no longer rising, it is unlikely that consumer confidence will pick up very quickly.

"We may have to accept that confidence levels could well worsen before they get better. This is especially true as inflationary pressures mean the MPC will probably prefer to cut rates at a more gradual pace than many would prefer."

Consumers' feelings about the current economy took a turn for the worse in April - only 17% of people thinking the current economic situation is good. This is less than half of the level that thought the economy was in good shape before the credit crunch and Northern Rock issues arose (36%). In fact, there has been a near complete reversal in economic sentiment since the autumn.

Today, over one third (39%) of consumers think the economy is in bad shape - a very similar proportion to those who thought it was in good shape before the credit crunch hit.

Looking ahead, almost half (45%) of consumers believe the economy will be worse shape in six months time, compared to 26% who thought this at the same time last year.

Consumers are also more reluctant to purchase household goods - 12% believing now is a bad time to buy - twice as many as six months ago.

Despite a slight improvement in March, expectations around house prices fell once again in April - consumers anticipating that house prices will fall by -1.7% over the next six months.

07 May 2008 © Moneyextra.com

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