Consumers feel more optimistic about future

5 November 2008

The government’s banking bailout has bolstered consumer confidence and left households feeling the most optimistic they have been since December last year, according to Nationwide.

The building society’s consumer confidence index shows that in October people felt brighter with confidence up 23% following the government’s capital injection into the banking sector.

Over the past year, confidence has been dampened by falling house prices, the rise in the cost of living and fears of a recession in 2009. Although the majority of people remain downhearted about the present situation, last month there was an uplift in the proportion thinking the situation would improve over the next six months.

Fionnuala Earley, chief economist at Nationwide, says: "The actions taken by the government and the Bank of England to support financial markets do seem to have buoyed consumers' confidence and could be responsible for the increased confidence in the future economic situation.”

However, with the economy heading into recession, she warns there will be bumpy times ahead.

“It is likely to be some time before confidence returns to the level of a year ago,” Earley adds. “Rapid cuts in interest rates are, however, on the horizon and this may support a recovery in confidence going forward."

Unemployment concerns remain on people’s minds, with an increasingly gloomy outlook about the job market. And expectations about house prices over the next six months continued to fall.

Another confident index, commissioned by the European Commission, shows that confidence across the board is falling, with fewer people believing now is a good time to spend or save.

Rachael Joy, in the consumer confidence team at GfK NOP, which carried out the research, says: “The turmoil surrounding the banking world and subsequent turbulence in the financial markets is making for an uncertain time.

“Consumers are not at all confident about buying major purchases as rising food and energy bills leave them increasingly worried about keeping up with payments, and saving has also seen a considerable drop, possibly due to fears of the safety of savings, as well as straightened resources as household bills increase.”

Joy believes that even lower interest rate and petrol prices are unlikely to have a significant affect on confidence in the upcoming months.

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