The Monetary Policy Committee is likely to keep interest rates unchanged as overall consumer confidence appears to have stabilised.
Latest figures from the Nationwide Consumer Confidence Index reveal confidence has stabilised as the Index remained flat staying at 94 points for the third consecutive month, although it remains down six points from a year ago and 16 points lower than the highest level of 110 in February last year.
As a result Nationwide is predicting a 75% chance of the MPC keeping the base rate at 4.5% with just a 25% chance of an increase, arguing as it has been a year since the last rate change, a further change is unlikely while confidence remains stable.
However although overall confidence levels have stabilised, Nationwide says confidence in the current economic situation is falling, reaching a new low of 88. It says confidence in the economy and employment has on average fallen half a point a month since Nationwide began the Index in May 2004.
Consumers seem to be particularly gloomy about the employment situation, with 33% pessimistic about the number of jobs available in six months, a significant increase from the 21% seen in May 2004 when the Index began.
And confidence in the current employment situation is also negative, with pessimism on the availability of jobs rising to a high of 28% for the third time in eight months, and up 2% from the June figures.
After two months of continuing rises, the Expectations Index fell back just one point to 97, while the Spending Index rose nine points to 104, the only one of the three indices to see a rise, making it three points higher than a year ago.
Nationwide says official sales data suggests the World Cup boosted the sales of food and drink, but it may lead to cut backs later in the year as they remain cautious on how much they are willing to spend.
In addition the company says house price expectations have risen significantly over the last month, with consumers now expecting prices to rise 4.2% over the next six months, the highest increase ever predicted and an increase from the 2.7% forecast in June.
Stuart Bernau, executive director of Nationwide, says: “It is almost 12 months since the Bank of England last changed the base rate and over that period consumer confidence has stabilised.”
However he points out this may not last as people are increasingly concerned about the current economic situation and the number of jobs available both now and over the coming months.
He adds: “There remain signs of unrelenting pressure on consumers especially with continued energy price increases and moderate earnings growth. This, plus the recent run of strong economic data will give the MPC food for thought and could ignite debate about a possible rate change.”
The MPC is expected to announce its decision on whether to keep the rate as it is or to make a change later today.
If you have any comments you would like to add to this story or would like to speak to its author about a similar subject, telephone Nyree Stewart on 020 7968 4558 or email [email protected]IFAonline
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