Consumer confidence has increased for the third month in a row, but uncertainty over interest rates is limiting enthusiasm for large purchases, claims Nationwide.
The latest instalment of the Nationwide Consumer Confidence Index shows a three point increase in March to 88, however it points out confidence is still subdued and “well below” the levels seen during the first half of 2006.
And Nationwide suggests the impact of higher interest rates is partly responsible for this subdued mood, with the Bank of England scheduled to make its monthly rate decision tomorrow.
However the company says a three point rise in the Present Situation Index, to 87, suggests for the first time in four months consumers seem to be happier about the current economic and employment situation, indicating many may be beginning to accept interest rate increases are necessary to avoid future economic problems.
In addition, the Expectations Index has also increased over the last month with a rise of three points to 89, suggesting confidence in the economic and employment situation in six months time is high.
But Nationwide points out the Spending Index – which measures confidence about making either major or household purchases - fell significantly with a drop of 11 points to 83, which is down 23 points compared to this time last year.
The company also says the figure, which is also below its three month average of 89, suggests consumers are not in a hurry to make significant purchases and may still resist attempts by retailers to raise their prices.
In particular, 45% of consumers stated it is a bad time to major purchases such as a house or car - up 6% from February - compared to just 19% who think it is a good time, with Nationwide suggesting the figures could be reflecting a cooling in house price expectations.
Meanwhile, the company says consumers’ expectations of future house price growth have fallen for the second month in a row, with consumers now expecting house prices to rise by 3.2% over the coming six months, down from 3.4% in February.
And it says the second fall could be further evidence that rising interest rates are having a dampening effect on the housing market, while fewer buyer enquiries, a slowing in mortgage approvals and a decline in the rate of house price growth, may also be leading consumers to expect the housing market to soften further.
Fionnuala Earley, chief economist at Nationwide, says: “Although consumers appeared slightly more upbeat in March, the overall picture is still subdued. With uncertainty about the interest rate position, but with the risk clearly on the upside, consumers are unlikely to recover confidence in the short term.”
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 7034 2681 or email [email protected]IFAonline
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