Type of Activity:

Press Release

Title:

Consumer confidence: best not to look at it

NIESR Author 1:

James Mitchell

NIESR Author 2:

Martin Weale

External Authors:

Date:

Wednesday, 3rd January, 2007

JEL Classification:

Keywords:

External Web Link:

Link to PDF file of full version:

Notes / Summary / Abstract:

A new study from the National Institute of Economic and Social Research looks at the capacity of consumer confidence data to anticipate changes in household incomes and consumer spending. The study came to the conclusion that consumer confidence estimates in the United Kingdom have little predictive power and that it is probably a mistake for the Bank of England to set interest rates with reference to them.



The study used data collected in the British Household Panel Survey. Since 1991 this has asked a panel of households how they expect their financial situation to change in the coming year. The survey also asks people about their incomes and provides an indicator of spending.



The study found that:



* Consumer confidence data do not provide a guide to future spending.



* The data have slight predictive power for income but that their importance disappears once the influence of past income is taken into account.



James Mitchell, the researcher leading the study said, “Compared to the findings of our earlier work on industrial surveys, these data seem to be singularly uninformative. If the Bank of England is taking them into account when setting interest rates it should probably stop doing so”.



For more information please contact James Mitchell on 020 7654 1926



Notes to editors:

This research was supported by the Economic and Social Research Council. The paper describing the findings is available from http://www.niesr.ac.uk/pubs/DPS/dp286.pdf.