UK Consumer Confidence Declines Due to Economic Uncertainty

UK consumer sentiment dipped in February, reflecting a hesitancy among households to increase spending, despite indications that the economy might be recovering from a recent mild recession. The decline was noted in the GfK’s key sentiment gauge, which fell by 2 points to a level of -21, halting a three-month trend of gradual improvements. This decline was contrary to expectations, as a Bloomberg survey of economists had forecasted a slightly more optimistic average index value of -18.

The reduction in consumer confidence was observed across various metrics, most notably in the measure assessing consumers’ readiness to make significant purchases. However, there remained a cautious optimism about the financial outlook for the year ahead among households. Despite these mixed feelings, the overall sentiment suggested that consumer confidence alone might not be enough to usher in a stronger economic upturn.

This drop in confidence poses a challenge for Prime Minister Rishi Sunak, who is dependent on an uplift in public mood, driven by declining inflation and improved standards of living. These factors are seen as vital for the Conservative Party’s performance in the upcoming elections later this year.

Data indicating recovery in retail sales and private sector activities suggest the economy is rebounding from the technical recession it experienced in the latter half of the previous year. Nevertheless, consumer expenditure remains limited due to the impact of high-interest rates on household budgets.

An index by GfK, tracking personal financial prospects, showed more resilience compared to other aspects of consumer confidence, yet it stayed at a standstill, scoring zero this month. Linda Ellett from KPMG, specializing in Consumer, Retail, and Leisure in the UK, pointed out that many households continue to adjust their spending to cope with rising costs for necessities. She also noted that many will face increased mortgage rates as their fixed-term deals come to an end this year.

These consumer confidence figures emerge just before the March 6 budget announcement. With the Conservatives trailing behind Labour in opinion polls by a significant margin, Chancellor Jeremy Hunt is expected to propose further tax cuts in an effort to sway voters.