The index is now just 10 points higher than at the same time last year. While there was no change to the Spending Index, faith in the present situation and consumers’ expectations for the future diminished during May.
The Expectations Index underwent the most substantial shift, falling back by 12 points. This index has now fallen by 26 points since February. Consumers continue to show a guarded optimism towards the housing market, with consumers expecting the value of their home to increase by 1.0% over the next six months.
Martin Gahbauer, Nationwide’s chief economist, said:
“May’s figures reflect an unsettling month for consumers. The General Election and new coalition Government have clearly dominated the headlines, but other major events will have played on the minds of consumers during the month. These include the sovereign debt crisis in the Eurozone and the travel disruptions caused by the volcanic ash cloud.
"Bearing in mind the gravitas of these events, it is perhaps less surprising to see such a sharp fall in consumer sentiment over this period. On analysis of the figures, it is clear to see that the catalyst for the fall in overall confidence has been growing pessimism around the present and future economic situation, while sentiment toward the labour market remains relatively stable despite still high unemployment figures.
Election and budget uncertainty a possible factor behind May disquiet
“While it may have been expected for confidence to grow following the General Election, this has not been the case during May. However, this situation is not unique, and we can see that a similar dip was experienced following Labour’s re-election in 2005.
"Nonetheless, the pre-election uncertainty that is suspected of creeping into the index during March and April may also have contributed to May disquiet, and any anxiety may have been heightened by the wait that occurred between the confirmation of a hung Parliament and the announcement of a coalition Government. Consumers’ concerns over the state and direction of the UK economy may also have been affected by the announcement of an emergency budget in June.
"Until the impact of this is known, and consumers understand where the focus of spending cuts and tax increases will be, it is possible that confidence in the economic situation will continue to stutter.
Consumers feeling unsettled over the economy
“In addition to the General Election, economic headlines were dominated by the debt crisis in the Eurozone and the accompanying sharp falls in the stock market. The gloomy picture that has been painted as a result of these events could help to further explain why consumers are feeling more
down-beat about the present and future economic situation.
"There has been a noticeable change in sentiment on the economy during the month and 22% of consumers now feel that the economic situation will be worse in six months’ time than it is today, the highest this measure has been since June 2009.
Looking to the future
“There are clearly growing concerns among consumers towards the state of the economy and what the next six months hold. However, during this period retailers will be hoping that the football World Cup will have a positive impact on sales, and consumers will be looking for a clear plan as to how the coalition intend to bring the deficit under control.
"Therefore, the next couple of months could be critical to the future direction of the UK economy and overall confidence among consumers.”
