Lower inflation lifts UK consumer sentiment to two-year high

By Suban Abdulla

LONDON (Reuters) – British consumers are their most confident since January 2022 as lower inflation helped them to feel better about their finances, a survey showed on Friday, welcome news for Prime Minister Rishi Sunak before a national election expected this year.

The GfK consumer confidence index rose to -19 in January from -22 in December. A Reuters poll of economists had forecast a slightly smaller improvement to -21.

“Despite the cost-of-living crisis still impacting many households across the UK, consumers appear to be encouraged by the positive news about falling inflation,” Joe Staton, client strategy director at GfK said.

Sunak, who has suggested he will hold a national election in the second half of 2024, has promised to voters that he will get the economy growing again.

While British inflation unexpectedly rose to 4% in December, denting investors’ hopes of quick interest rate cuts by the Bank of England, it is well below its peak of 11.1% in October 2022.

The BoE is expected to hold its main Bank Rate at a nearly 16-year high of 5.25% next week after 14 consecutive increases between December 2021 and August 2023 but analysts are expecting a signal that the time for rate cuts might be approaching.

GfK said all five of its confidence gauges rose in January with the outlook for personal finances in the next 12 months out of negative territory for the first time in two years with a reading of zero.

“This significant change is the best single indicator for how the nation’s households feel about their income and expenditure,” Staton said.

A measure of how consumers view the economy over the next 12 months increased by four points to -21.

Friday’s survey contrasted with official data published last week, which showed the biggest fall in retail sales for nearly three years in December, raising the risk that the economy slipped into recession in late 2023.