Consumers rein in spending as confidence dips

Consumers are becoming more and more pessimistic, the Nationwide building society has reported.

Its Consumer Confidence index dropped by seven points during April to stand at just 70 against a base of 100 – its lowest level since the index was launched in May 2004 and 20 per cent below April 2007's figure. The latest findings mean that confidence has declined for the seventh month in succession.

The fall was driven by people worrying about the UK's financial health, with a meagre 17 per cent of Nationwide's survey sample thinking the current economic and employment situation is good. Nearly half believe the economy is set to get worse during the rest of 2008. Last August, nearly four out of 10 of those surveyed thought that the outlook was bright.

Since then, however, the economic indicators have worsened, the cost of living has gone up and house prices have started to fall and are widely predicted to slip further.

Nationwide added that people's pessimism about the economy is causing them to tighten their belts, with 60 per cent thinking that now is a bad time to commit to purchasing a property or car.

"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," said Fionnuala Earley, Nationwide's chief economist.

"We may have to accept that confidence levels could well worsen before they get better. This is especially true as inflationary pressures mean the Bank of England's Monetary Policy Committee will probably prefer to cut rates at a more gradual pace than many would prefer," she added.