In January, consumer confidence in the UK received a significant boost, a result of hopes for decreasing inflation and the potential for the Bank of England to lower interest rates. Research firm GfK reported that consumer confidence increased by three points, reaching its highest level in two years at -19. This boost in confidence is further supported by an increase in optimism for the next 12 months, with all five measures provided by GfK showing improvement compared to December.
One area of improvement worth noting is the view on personal financial situations for the coming year, which gained two points and now stands at zero. This is a significant change, as it marks the end of a continuous 24-month period of negative scores in this measure. It serves as a crucial indicator of how households in the nation feel about their income and expenditure.
Joe Staton, Client Strategy Director at GfK, acknowledged that the cost-of-living crisis still affects many households across the UK. However, he believes that the positive news of falling inflation is providing consumers with some encouragement. Despite the ongoing national and global turmoil, the Consumer Confidence Index has begun 2024 on a positive note. Staton is eager to see if this optimism will continue in the future.
GfK’s index measuring changes in personal finances over the past year also saw a two-point increase to -12, significantly better compared to January 2023. The measure for the general economic situation of the country in the last 12 months rose by three points to -41 compared to December, representing a substantial 30-point improvement from January 2023. Expectations for the general economic situation over the next 12 months also increased by four points to -21, showing an impressive 33-point improvement from a year ago.
Additionally, the Major Purchase Index saw a three-point increase to -20, marking a 20-point improvement compared to the same month last year. Although the Savings Index remained the same at +27 in January, it is 13 points higher than the previous year.
Robyn Duffy, Senior Analyst at RSM UK, views the latest data as a positive sign for consumer spending in 2024. She predicts that the drag on sentiment caused by geopolitical crises will likely decrease by the middle of the year. With inflation expected to reach 2% in the second quarter, projected interest rate decreases, potential tax cuts after the Spring Budget, and continued growth in real wages, consumers should experience an increase in disposable income by the summer.
In the meantime, consumers are expected to approach spending cautiously, but there is hope for January. The enticing discounts of Black Friday and Cyber Monday prompted savvy consumers to move their Christmas spending forward, resulting in increased trade in November during the festive period. With January’s discounting and the recent boost in confidence, it is anticipated that consumer spending will be more robust at the beginning of the new year.
Sources:
1. GfK’s UK Consumer Confidence Index
2. RSM UK – Consumer Confidence Improves as Brexit Fog Lifts
