Consumers’ Financial Confidence on the Rise, but Dismal Outlook for UK Economy Remains

Consumer confidence in the UK has seen a mixed shift, according to the latest Consumer Confidence Index released by market research firm GfK. The index, based on a survey of 2,000 adults between 1 August and 15 August, showed that while consumers are feeling more positive about their personal finances, their confidence in the overall state of the UK economy has decreased.

The drop in economic confidence, from -11 in July to -15 in August, is the first decline in national economic confidence in six months. This can be attributed to factors such as falling inflation and the recent decision by the Bank of England to cut interest rates, both of which are likely to have influenced the shift in consumer sentiment.

The July general election is also believed to have played a role in providing a sense of political certainty, contributing to the overall mood of consumers. Linda Ellett, UK head of consumer, retail, and leisure for KPMG, commented on the gradual recovery of consumer confidence, stating that “with greater inflation stability, the first cut to interest rates since 2020, and the election having provided political certainty, consumer confidence is gradually recovering.”

However, Ellett also noted that there is still a lack of evidence to suggest a consistent and significant increase in discretionary spending. The GfK survey found that while consumers are more optimistic about their personal financial situation over the next 12 months, there is still a sense of variability in household finances.

Despite this, recent official figures have shown signs of a gradually improving outlook for the UK economy. Retail sales grew by 0.5% in July, after a 0.9% decline in June, and gross domestic product rose by 0.6% between April and June. However, the number of businesses going bankrupt increased by 16% year-on-year in July, indicating that some businesses are still recovering from the impact of high inflation and borrowing costs in recent years.

There are also concerns that personal finances may take a hit later this year if energy prices rise, according to some commentators. GfK’s client strategy director Joe Staton noted that the recent “mortgage-friendly” cut in interest rates, and hopes for further cuts, may have contributed to the more positive outlook among consumers. He also highlighted the increase in consumer confidence regarding major purchases in the year ahead, describing it as “great news for retailers.”

Despite the mixed shift in consumer confidence, the overall index score for August remains unchanged at -13, the same as the previous month. Staton pointed out that while all key numbers this month are significantly more encouraging compared to 12 and 24 months ago, it remains to be seen if this slow improvement in the mood of the nation will continue through the autumn and winter months.