Consumers in the UK became more confident in March and were more willing to spend, according to a survey by Nationwide Building Society. However, there's a good chance that confidence will fall back in the months to come.
Nationwide's consumer confidence index rose from a score of 44 to 53 in March. This means that consumers were more confident about the current economic situation and were more willing to buy 'big ticket' items such as cars and holidays. Nationwide thinks that falling inflation was the most important factor behind the increased confidence.
If consumers are more confident, they're more likely to spend and that, in turn, should boost economic growth. For that reason, economists and investors pay close attention to consumer confidence figures.
So you might think we're about to see some decent economic growth this summer. Trouble is, the the government announced some rotten economic numbers on Wednesday – in fact, we discovered that the UK has now returned to recession.
The return to recession has received plenty of coverage in the media and will almost inevitably damage confidence. That reduced confidence will damage the economy further.
Although March's rise in confidence is sizeable, it's worth stressing that confidence has been much higher in the past. For example, the consumer confidence score was 97 back in May 2004, much higher than the number for last month. What's more, last month's figure is 23 points below the long-term average.
Today's announcement from Nationwide follows yesterday's news that the UK economy had now returned to recession. In other words, the UK economy contracted in the last six months.
This latest gloomy economic news has received plenty of coverage in the media, so there's a strong chance that consumer confidence will fall backwards in the next few months.
The Nationwide survey of 1000 people was conducted between February 20th and March 25th.