UK consumer confidence rises to 3-month high

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UK consumer confidence rose for the second consecutive month in December, according to research company GfK, suggesting households could be more inclined to spend this Christmas.

The consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose two points to minus 22, its highest level since September and the second-highest since January 2022, new data showed on Friday.

Consumer confidence has been volatile in recent months, reflecting contrasting factors in the wider economy.

Elevated prices and high borrowing costs have weighed on households’ budgets. But wages have begun to rise faster than inflation while mortgage rates are down from their summer peak, supporting people’s sense of financial security.

“Despite the severe cost of living crisis still impacting most households, this slow but persistent movement towards positive territory for the personal finance measure looking ahead is an encouraging sign for the year to come,” said Joe Staton, client strategy director at GfK.

Investors closely watch the index as an early indicator of spending trends. Households with greater confidence in their financial situation and general economic outlook are typically less inclined to save and more likely to spend, boosting the economy.

The increase in confidence in December could help prevent markets from raising their bets on how much the Bank of England could cut interest rates by next year.

On Thursday, the central bank held rates at a 5.25 per cent high, saying “further tightening in monetary policy would be required if there were evidence of more persistent inflationary pressures”.

Markets are expecting the central bank to cut rates to 4 per cent by the end of December next year, following a contraction in economic output in October and wage growth slowing more than expected.

The data showed that confidence was also sharply higher from minus 42 in December 2022. For the year ahead, expectations of their personal financial situation rose one point to minus 2 in December, up strongly from minus 29 in December 2022.

Staton said the recovery in that sub-index was encouraging because it indicated household “financial optimism and control over personal budgets”.

Ellie Henderson, economist at Investec, said some of chancellor Jeremy Hunt’s announcements in the Autumn Statement were likely to have “boosted respondents’ perception of their future financial situation”.

These included the decision to cut employees’ National Insurance contributions by 2p from January and a 9.8 per cent rise in the National Living Wage from April.

However, she pointed out that consumer confidence remained well below its long-term average, “reflecting the still challenging economic backdrop”.