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Consumer confidence takes a tumble ahead of Government Spending Review

Published: 13 October 2010
Index drops nine points to 53 in September, reversing "temporary uplift" seen in August, as shoppers left uncertain by Government action.
Consumer confidence takes a tumble ahead of Government Spending Review
The figures reported by Nationwide's Consumer Confidence Index, show a reversal of the gain seen in August, and now stands at its lowest level for more than a year. It is also well below the long-run average of 83.

GfK NOP also reported a drop in consumer confidence for the month, with its Index revealing a two point drop to -20.

Nationwide's chief economist Martin Gahbauer said: "September saw confidence return to its downward path following what now appears to have been a temporary uplift in sentiment during August. August figures had suggested that confidence may have turned the corner following a succession of falls in the run up to and after the recent General Election."

He added that the recent drop seen in September has "perhaps been driven by a realisation of the true impact of the cuts announced in the emergency Budget. The Government's impending Spending Review is likely to have a strong bearing on consumer confidence in the coming weeks and we can expect the index to remain volatile."

Meanwhile, the Spending Index saw the biggest fall in September, decreasing by 14 points to 85 - the lowest level since November 2008. It is now below the long-run average of 92.

Mr Gahbauer explained that consumers seem to be avoiding big purchases, wary of committing to such an expenditure when the Spending Review and the extra cost of the festive period is 'playing on their minds'.

This is despite reports by BDO of a 6.1% leap in high street spending in September, with a surge in demand in the homewares market, which saw 10.2% growth. Sales were also helped, said the firm, by consumers splashing out on big-ticket items now in a bid to beat the VAT increase at the start of next year.

He said: "Confidence in spending took a knock during September, which may be a cause for concern among retailers as we enter into the run up to Christmas. Recent figures from the high street showed retail sales falling during August, and it could be that consumers are now beginning to feel the pinch on their spending power, which up to now remained resilient despite difficult economic conditions.

"Of particular note is the decrease in sentiment around spending on larger items, such as a house or car... The Government's Spending Review, and additional expenses incurred over the Christmas period, may also be playing on the minds of consumers, as they decide whether to commit to a major purchase at present."

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