UK confidence indicators all worsen as eurozone regains highs

UK economic confidence worsened this month in stark contrast to the buoyant mood across the Channel where eurozone economic sentiment has hit its highest level since July 2007.

The European Commission’s Eurostat arm reported the economic sentiment indicator for the euro area rose to 111.9 in August from a revised 111.3 the previous month and beating the consensus forecast of 111.3.

Confidence in industrial and services businesses both improved more than forecast, while consumer confidence increased, though retail and construction indicators showed worse readings.

The ESI increased in three of the five largest euro-area economies, with Italy up 3.6, France 1.7 and Spain 1.4, while it eased 0.6 in Germany 0.9 in the Netherlands.

For the European Union as a whole there was a slight reduction in economic sentiment to -0.3, which was mainly due to the worsening sentiment in the largest non-eurozone economy, the UK.

UK economic sentiment dropped 3.6 to 109.6, reversing the pickup in July as all sub-indices deteriorated.

Industrial confidence fell to 12.8 in August from 16.0 a month ago, while services sentiment dropped to 2.5 from 3.3.

The consumer confidence indicator, a seasonally-adjusted version of GfK’s survey that is due to be published on Thursday, moved further into the negative, weakening to -7.2 from -6.5 in July.

Retail trade confidence crashed to -3.4 from July's positive 11.5 and construction sentiment softened yet further to -16 from -11.6, the building trade's lowest confidence since immediately after the Brexit vote.

Economist Sam Tombs said the ECs data brings mixed news on the likely strength of CPI inflation over the coming months, with the net balance of food retailers who plan to increase prices over the next three months plunging to +30 in August, from +78 in July, suggesting that supermarkets are preparing to shield consumers from the recent surge in producer prices.

But the balance of general retailers planning price rises increased to its highest level since November 1990, suggesting that core inflation will rise sharply.

"As a result, we continue to expect CPI inflation to hit 3% before the end of this year, up from 2.6% in July," Tombs said.