Confidence up - but has a long way to go

The IC/Confidence Index continued its steady rise and in August posted yet another two point increase, but at this rate it is going to take a long while before it is able to return to positive territory which it last enjoyed back in April 2007.

September 20, 2012

by Robert Ansted

The upward movement in the overall index for August was down to the improvement in just two of its constituent factors: the Dow Jones performance and the monthly UK house prices.

Month	August	July	June
Index value	-29	-31	-33

The IC/Confidence Index may well have recorded a higher score overall but for the factor for the retail price index (RPI) which had a complete volte-face. The annual rate of inflation as measured by the RPI has been steadily falling since October last year but it rose in August and this will have the knock on affect of causing misery to countless railway commuters in the New Year. The railway companies along with many other authorities calculate their annual increases by using the rate of inflation for August plus 2 per cent and it was certainly ironic that it fell again in September.

Once again there was an improvement in the FTSE 100 Index but the forecast predicted by the four-month moving average for the IC/Confidence Index continues to be down beat.

The IC's Confidence Index is the first of its kind to take into account stock market, economic and general 'feel-good' factors. It is calculated using 10 factors, split into four categories:

■ Prices (RPI, oil price);

■ Rates (interest rate levels, unemployment figures);

■ Stock market (UK new share issues and rising shares, and the level of the Dow Jones index);

■ 'Feel-good' (wages, house prices, the sunshine anomaly)

UK indices such as the FTSE 100 have been excluded from the components, but the Dow Jones is included because of its global influence. As for the sunshine factor, it's a proven fact that people feel better when the sun is shining - and this can even influence investment habits. Each factor is separately allotted a score from +5 to -5. The sum of these scores gives the Investors Chronicle Confidence Index level, on a scale from -50 to +50.