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UK consumer confidence waned in February, according to research company GfK, suggesting that the early optimism for 2024 has abated in the face of persistently high inflation.
The consumer confidence index, a leading indicator of consumer spending that measures people’s views of their personal finances and the state of the economy, fell to minus 21 in February from a two-year high of minus 19 in January. The reading followed three consecutive months of increases.
Driving the change were two-point month-on-month decreases in both consumers’ assessment of their personal financial situation and their views on the general economic situation in the past 12 months. These were probably driven by inflation remaining at 4 per cent in January, analysts said.
“Fears that inflation is about to return and the associated erosion of purchasing power will have had a negative influence,” said Tomasz Wieladek of T Rowe Price.
Consumer confidence in the economic outlook for the next 12 months also declined in February, down by three points to minus 24, as markets start to price an increasingly hawkish scenario for the Bank of England after inflation remained flat in January.
“There is a mixture of bad news and good news for February,” said Joe Staton, client strategy director for GfK. “The bad news is that the improvement in the overall index score seen over recent months stalled slightly . . . the good news is that optimism for our personal financial situation for the next 12 months has not slipped back.”
Consumers’ expectations for their personal financial situations for the coming year did not change from January, holding steady at 0. January was the first time this rating had been positive since December 2021.
“This metric is key to understanding the financial mood of the nation, because confident householders are more likely to spend despite the cost of living crisis,” said Staton.
The fall in UK sentiment contrasts with a simultaneous larger-than-expected rise in European consumer confidence, according to data released earlier in the week.
Retail sales were up in January and the UK’s business activity beat expectations in February, suggesting that the UK economy is emerging from its economic torpor.
However, simultaneous rises in mortgage rates and recent evidence that the UK dipped into a recession in 2023 have left consumers wary.
Despite the month-on-month slip in February, consumer confidence is 17 points higher than in February last year and 38 points higher than its recent low in September 2022.
However, the consumer confidence index remains negative, meaning that most respondents are still doleful about the economy, and it is still below the average of minus 17 over the past few decades.
Many analysts believe consumers still have much to be optimistic about.
“There are some supporting forces for consumers, such as expectations of oncoming quantitative easing, the two [percentage] point cut to national insurance, and strong wage growth,” said Ellie Henderson of Investec.
Source: Economy - ft.com
