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Rate rise leaves confidence at all-time low

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A new survey suggests that the recent rate rise has had a dramatic psychological effect on house buyers.

Despite there being no tangible effect of last month's increase in interest rates at the beginning of August on property trading, as previously reported on Assetz news, consumer confidence appears to have plummeted. The Nationwide Consumer Confidence Index fell 11 points to 83 – its lowest ever level.

The index has been falling steadily since the start of 2006 and is now 17 per cent lower than a year ago. Furthermore, this August marked the largest ever monthly fall in the expectations index, of 16 points, with regard to the future state of the economy.

The case could be put forward that the drop in expectations is precisely because the economy is performing well at the minute and people do not expect strong and steady growth to continue forever. However, in July, a quarter of people believed that the economic situation in six months' time would be worse than at the time of asking – by August this figure had jumped to more than one in three.

Stuart Bernau, Nationwide's executive director, said: "The Bank of England's decision to increase base rate clearly had a dramatic impact on consumer confidence and people's reactions over the coming weeks will be crucial. If confidence fails to bounce back, the impact on many areas of the economy could be severe."

Clearly, the monetary policy committee's decision is making its impact on people's wallets. But there are other factors which have contributed to the country's negative mindset.

Despite the historic high levels of employment, an all-time low of 37 per cent of consumers believe that there will be enough jobs available in six months' time, down from 41 per cent in July. In addition rising oil prices due to the ongoing instability in the Middle East coupled with the recent Heathrow terror alert, have had adverse effects on economic outlook.

Mr Bernau added: "The coming months will prove to be telling as they will show whether confidence can recover at a time when consumers' pockets begin to feel the real effect of the rate change. Speculation that base rate could increase for a second time before the year is out may mean that confidence remains low for some time to come."

Britons' shaken confidence has fed through to their house price expectations which currently reside a modest 3.5 per cent increase over the coming six month, down from 4.2 per cent in July.

With the prospect of a further rate rise looming, consumer confidence in the country's economy does not look set to improve any time soon. However, whether this shall actually affect the property market in reality remains to be seen.

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