Consumer confidence fell in December

Consumers are increasingly nervous about the economic outlook in 2010 as new data published on Wednesday showed confidence fell in December.

The Nationwide Consumer Confidence index dropped by five points last month, its biggest fall since November 2008.

While the Present Situation index remained unchanged on 20 points, the Expectations index dropped by eight points to 101 in December.

Martin Gahbauer, chief economist at Nationwide, said the looming VAT hike and other tax changes announced in the pre-Budget report was likely to have impacted on confidence.

“Although it is still early days, these lower expectations may foreshadow a more sluggish consumer outlook in 2010 as stimulus measures are withdrawn,” he said.

The proportion of consumers who think the economic situation will be better in six months’ time now stands at 34 per cent, compared to 41 per cent in November.

Although the Expectations index fell back in December, it finished the year 43 points higher than where it started in January.

“The five point fall in confidence in December suggests that an element of caution may have begun to creep back into the minds of consumers over the christmas period. This comes at the end of a positive year for the index, which gained some upwards momentum in 2009 to help claw its way up from the record low seen in January,” Gahbauer said.

Expectations about house prices remained constant in December, with consumers expecting the value of their home to increase by 1 per cent over the next six months.

Meanwhile, the Spending Index fell by one point in December but remained above the 100 point level for an eleventh consecutive month.

While over a third of consumers believe now to be a good time to make a major purchase, the percentage of consumers who believe it is a bad time increased by four percentage points to 38 per cent in December. Gahbauer said this is likely to reflect concerns over the end of the stamp duty holiday and the VAT rate increase in January 2010.