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Consumer confidence held back by spending fears

Consumers are beginning to feel more confident about the economy but that sentiment is not filtering through to attitudes on spending.

The Nationwide Consumer Confidence Index recorded a three point increase in January to 73, following a dip in confidence last month and almost double the level of confidence recorded during the same period last year.

Expectations about house prices also rose slightly in January, with consumers expecting the value of their home to increase by 1.1% over the next six months, compared to 1% in December.

Martin Gahbauer, chief economist at Nationwide, says: “Positive signs from the manufacturing sector and labour market may have helped boost confidence during January, but confidence is likely to remain fragile for some months to come.”

Out of the 1,000 consumers who were polled by Nationwide, some 22% believe there are many or some jobs available.

A futher 69% believe the current economic situation to be bad, compared to 73% in December and 82% in January last year.

Consumers seem to be becoming gradually more upbeat with 36% believing the economic situation would be better in six months time, compared to 34% last month and17% in January 2009.

The number of those believing there will be more jobs in the future increased by four percentage points in January to 29% – the highest percentage since June 2008.

Half of those questioned believe there will be few jobs available in six months time, down from 53% in December and 67% at the same time last year.

Nationwide says that typically spending confidence goes up in January, but that hasn’t been the case this year.

The percentage of those who think that now is a good time make a major purchase has gone from 35% in December to 32% this month.

But attitudes on buying household goods rose slightly, rising to 45% from 42% last months.

Gahbauer says the dip in spending confidence may be down to removal of government measures such as lower VAT and the Stamp Duty holiday, but also that consumers would rather pay off debt rather than make large purchases so soon after Christmas.

He says: “Heavy discounting on the high street and government driven incentives such as lower VAT, the car scrappage scheme and the Stamp Duty holiday combined to keep the spending index buoyant throughout much of 2009.

“The removal of these initiatives may now be causing consumers to reconsider parting with their cash at a time of year when we would normally expect to see high levels of spending confidence.”




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