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UK consumer confidence rose more than expected in August, driven by lower energy prices and faster wage growth.
The research group said consumer confidence – a gauge of how people view their personal finances and the broader economic outlook – rose 5 percentage points to -25, recouping most of July’s losses and returning to levels last year GfK Week Five said.
The figure was stronger than the marginal rise of -29 forecast by economists polled by Reuters.
Joe Staton, director of client strategy at GfK, said consumer confidence “recovered momentum this month with a welcome 5 percentage point improvement”. He added: “While the country’s financial pulse remains weak, these signs of optimism are welcome for consumers across the UK in these challenging times.”
Some economists attribute the improvement to an easing of the cost of living crisis. Inflation fell to 6.8% in July, the lowest level since February last year and down from a peak of 11.1% in October.
Wage growth hit a record high in the three months to June, outpacing price gains for the first time in about a year and a half.
Lower mortgage rates over the past month and lower energy bills in July have boosted sentiment, said Gabriella Dickens, an economist at Pantheon Macroeconomics.
Ruth Gregory, an economist at Capital Economics, said the figures suggested that “the cost of living crisis is coming to an end”.
However, she warned that “consumer confidence could deteriorate again in the coming months as unemployment rises further, house prices fall and interest rates remain elevated”.
The Bank of England is expected to raise interest rates in September, the 15th consecutive hike since December 2021.
Consumer confidence is an indicator of willingness and ability to spend, which is crucial to economic growth because household spending accounts for a large portion of gross domestic product. That momentum was undercut by a surge in food and energy prices that surged to multi-decade highs following Russia’s invasion of Ukraine.
Based on interviews conducted in the first half of the month, the GfK index showed an improvement in all sub-indices in August. Expectations for personal finances for the year ahead rose four percentage points to minus three points, the closest they have been to positive readings since January 2022. Overall expectations for the economy also rose.
An eight-point increase in the metric tracking spending intentions “could be better news for retailers as we head into the fall,” Staton said.
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