UK consumer confidence falls amid inflation angst, eurozone's improves

UK consumer confidence fell back in January, data from the European Commission has shown, while eurozone confidence was better than expected.

The seasonally adjusted consumer confidence indicator edged down to -5.1 in January, from -4.6 in December, as they worry about a burst of high inflation.

UK consumer confidence is modestly lower than that of the eurozone, which surprised economists by improving to -4.7, when it was forecast to remain at -4.9.

Consumers have become more downbeat primarily because they anticipate inflation shooting up, the data showed, with the balance of households expecting prices to rise over the next year increasing in January to its highest since the start of 2011.

UK economic sentiment index fell to 107.1 in January from 108.5 in December, the EC said, slightly below the Eurozone average of 108.2.

Confidence in the manufacturing sector rose to its highest level in almost two years, but was gloomy about retail and construction, while confidence in the services sector sank sharply to the lowest level since May 2013.

Understandably amid the confusing economic and geopolitical news and conflicting messages about Brexit, confidence is still above the three-month low of -6.9 in November, which came after a -1.7 reading in September and the post-referendum -9.2 in July.

Over the channel, the eurozone ESI increased by a modest +0.4 points to 108.2 and remained broadly stable in the wider EU, down 0.2 points to 108.7.

Economist Sam Tombs at Pantheon Macroeconomics said UK optimism about the general economic outlook had deteriorated slightly, which was "perhaps in response to the Government’s willingness to threaten a cliff-edge Brexit".

But more certainly, he said the EC’s survey suggested the UK economy has begun 2017 on a weaker footing than it finished on last year.

Tombs suggested the increased concern about the services sector "tentatively suggests that January’s services PMI, released on Friday, will surprise the consensus to the downside".

Looking at the consumer confidence data, Howard Archer at IHS Global Insight said his strong suspicion was that consumers will find life getting tougher as 2017 progresses, retailers could quickly feel the pinch as he also pointed to a weakening in consumers’ major purchase index in January, which may also be related to inflation concerns.

"The problem facing the economy – and retailers in particular – is that it looks inevitable that the fundamentals for consumers will weaken markedly as 2017 progresses with purchasing power being increasingly squeezed. We also suspect that the labour market will soften," he said, noting the small dip in employment in the three months to November.

One possible boost, he suggested, is that in the near-term, some consumers may bring forward purchases of big-ticket items in the belief that their prices are likely to rise appreciably over the coming months.