Consumers are feeling more optimistic about their personal finances – but worse about the overall state of the UK economy, according to a closely watched survey.
Falling inflation and the Bank of England’s recent decision to cut interest rates are likely to be major factors in the mood shift, commentators said.
July’s general election is also thought to have provided a feeling of greater political certainty.
GfK’s long-running Consumer Confidence Index, based on a poll of 2,000 adults between 1 August and 15 August, found there had been a four-point fall in expectations about the next 12 months for the UK economy.
The score of -15 on the market research firm’s index, compared with -11 in July, is the survey’s first such drop in national economic confidence in six months.
However, when it came to respondent’s expectations of their personal financial situation over the next 12 months, the score improved from +3 in July to +6 in August.
Linda Ellett, UK head of consumer, retail and leisure for KPMG, said: “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, she added: “While there are welcome signs of seasonal summer spending for the retail sector that led to sales growth in July, the upturn was minimal.
“Household finances remain hugely variable and overall there is still little evidence to suggest that gradual increases in consumer confidence is yet to lead to a consistent and significant uplift in discretionary spending.”
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‘We face big challenges in the economy’
The survey findings come despite recent official figures which have pointed towards a gradually improving outlook for the UK economy.
Retail sales grew 0.5% in July, after contracting 0.9% in June, while gross domestic product rose by 0.6% between April and June.
However, the number of firms going bust increased by 16% year-on-year in July, in a sign that many businesses are still recovering from the impact of high inflation and borrowing costs in recent years.
Personal finances may also take a hit later this year if energy prices rise, as some commentators fear.
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GfK’s client strategy director Joe Staton agreed that the recent “mortgage-friendly” cut in interest rates – and hopes of more to come – may have led to a more positive outlook.
He said there had also been a rise in consumer confidence about making major purchases in the year ahead, which he described as “great news for retailers“.
Mr Staton added: “The wider point… is that all the key numbers this month are significantly more encouraging than 12 and 24 months ago.
“But as we move into autumn and winter, how much further will this slow improvement in the mood of the nation run?”
Overall consumer confidence, which includes both expectations about personal finances and the wider economy, held firm in August on a score of -13 on GfK’s index, the same as the month before.