Nationwide said its Consumer Confidence Index was 49, well below its average reading of 79. In June, the reading was 51.
Economists are predicting that the rest of 2011 will see no considerable improvement in consumer confidence. This may lead to even greater falls in stock markets around the world and could lead the world back into recession. Falling consumer/business confidence is the last thing we need to achieve periods of economic growth in the coming years. The LRAS curve may shift leftward if AD and (SR)AS shift leftward too.
The Government’s plan to freeze public sector pay for now and other private sector firms simply not rising wages in line with inflation (known as fiscal drag) means that the cost of living is rising, severely affecting consumer confidence.
Major purchases of big-ticket items are the hardest hit, Nationwide said, and consumers also continue to expect a fall in house prices over the next six months. This means the value of people’s assets are falling, and consumers will feel ‘poorer’ furthering the fall in consumer confidence.