Consumer Confidence Falls in January

Published on 1 January 1970 by Raffick Marday

Following a rise in December, consumer confidence fell back again in January, the latest study from Nationwide reveals. What does the future hold for cash-strapped consumers?

Confidence among consumers to the present economic situation remained subdued in January, with the majority of Brits expecting the housing market to remain sluggish over the coming months and most expecting the value of their homes to decrease by 1.1% over the next six months, too.

“Household confidence remained in the doldrums in January, with the main index falling towards the all time lows recorded during the recession,” says Robert Gardner, Nationwide's chief economist.

“Consumer perceptions are likely to have been dented by the rise in VAT and the upward pressure on inflation more generally, with rising prices for petrol and other essentials likely to have been recorded during the month.

Expectations towards the future economic situation have played a prominent role in pushing overall confidence down in the past 12 months, too with less than one in five consumers believing things will improve over the next six months.

The VAT rise and increased inflation, when combined with growing unemployment and pay freezes, as well as the credit card hangover from Christmas kicking in, there is little wonder that consumer confidence was low in January.

This will have put further pressure on household budgets in January and if interest rates rise - as many economists are urging the Bank of England to consider in combating inflation – is likely to cause greater problems for cash strapped consumers.

"I am fearful of the effect of interest rate hikes on a very over-borrowed economy and particularly an over-borrowed consumer,” said Ben Lord, co-manager of the M&G UK Inflation Linked Corporate Bond Fund.

“You only have to look at real wage growth which is negative at the moment. The consumer is getting poorer and if there's an interest rate rise we'll be entering a variable rate borrowed economy meaning even more of a hit to a consumer that's already feeling the pain.”

A study by Scottish Provident in January found that most Brits believe an acceptable level of debt is a staggering £15,837, with many 19-34 year olds believing £16,646 is acceptable.

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