UK consumers gain confidence for fifth consecutive month in June

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UK consumer confidence improved for the fifth consecutive month in June buoyed by strong labour market and lower energy prices, according to a closely watched barometer.

But the survey by research group GfK was conducted before the Bank of England surprised markets by raising interest rates by half a percentage point to 5 per cent on Thursday, increasing the pressure on households facing higher mortgage payments.

GfK said on Friday its consumer confidence index, a monthly measure of how people view their personal finances and wider economic prospects, rose three points to minus 24, marking an uninterrupted increase since January when the measure stood at minus 45.

This is the highest level since January 2022, before Russia’s full-scale invasion of Ukraine, and ahead of the consensus forecast of a small uptick to minus 26, according to economists polled by Reuters.

Joe Staton, Client Strategy Director, GfK, said consumers had so far shown “remarkable resilience” in the face of high inflation and soaring mortgage rates. He added that, if sustained, it would “provide a firm foundation for getting back [the economy] to growth.”

Economists said the strong labour market and fast-rising wages had helped drive the improvement in confidence. Lower energy costs, an improved economic outlook and expectations that inflation would slow in the months ahead had also lifted the mood.

“Confidence appears to be building that inflation will recede and, crucially, the labour market has held up better than many thought, yielding sizeable wage rises,” said Sandra Horsfield, economist at Investec.

Consumers’ mood “gained ground as the UK bucked forecasts for a recession, energy prices have retreated and the outlook has appeared rosier,” added Susannah Streeter, head of money and markets at Hargreaves Lansdown.

But analysts cautioned that the latest interest rate rise by the BoE would weigh on confidence in the months ahead as the cost of financing home loans rises for millions of households.

“A fast train of realisation is set to hit that budgets are set for a big squeeze as refinancing costs escalate, and deadlines loom for a larger span of borrowers which is likely to hit confidence in the months to come,” said Streeter.

The GfK survey, which is based on interviews carried out in the first half of June, showed that views on personal finances for the year ahead jumped by 7 points to minus 1. This is the highest level since December 2021, when the measure was last in positive territory.

The assessment of consumers’ financial situation over the past year improved 5 points, with a similar uptick in the outlook for the economic situation.