Week 19, 2012: UK Consumer Confidence

Summary: The Nationwide Consumer Confidence Index dropped back in April, erasing the gains made in March (which were still well below the long run average). A combination of poor GDP and unemployment figures is probably to blame.

What does the chart show? Every month, Nationwide holds a survey asking a selection of UK consumers questions about their confidence in various aspects of the economy, which they then turn into an index (with confidence in August 2004 equal to 100).

Why is the chart interesting? The big drop in consumer confidence around the time of the original recession in 2008 seemed to be followed by a recovery in confidence, if not in GDP growth, in 2009. However, since then, consumer confidence has plummeted to lower levels than even in the depth of recession as the economy's recovery has stalled. The relationship between consumer confidence and the state of the economy works both ways; consumers are generally less optimistic when faced with low or negative growth, but at the same time, lower levels of consumer confidence mean less consumption which has a negative effect on GDP. Breaking this cycle can be very difficult.

Fortunately, Nationwide are projecting confidence to increase over the summer in response to the Queen's jubilee and the Olympics in London.