UK consumer confidence improves but remains negative

UK consumer confidence surprisingly improved marginally in May, according to a closely followed survey, though it still remains in negative territory.

GfK’s consumer confidence index increased to -5 in May from -7 the month before, when the market had expected it to worsen to -8 as inflation and low wage growth increase the pressure on households.

Four of the five measures that make up the index increased: confidence in consumers' personal financial situation, the wider economy, and future plans for shopping and saving.

Said Joe Staton, head of market dynamics at GfK: "Despite life becoming more expensive with inflation hitting its highest level in four years, and wages dropping in real terms for the first time in three years, stagnant living standards haven’t yet significantly dented consumers’ spirits – when it comes to retail therapy we remain happy to splash the cash as sales jump ahead of expectations.

Although the overall index remained in negative territory, Staton said it was not as low as he might have expected during such periods of pre-election and pre-Brexit uncertainty.

"Perhaps the real squeeze in living standards is yet to hit home. After years of people paying off debts post-downturn, unsecured borrowing has steadily increased since 2014 reaching record highs this month. When will we get our comeuppance and realise we have to ‘pay-the-piper’?”

Barclays economists observed that the resilient consumer confidence over the last few months comes against a background of rising inflation, the triggering of Article 50, and the impending general election on 8 June.

"Consumers’ assessment of inflationary pressures is that more is still to come, even though headline CPI had already reached 2.7% y/y in April of this year.

"That, however, has not had a materially negative impact on consumers’ sentiment with regard to their personal finances, nor has it yet markedly dampened their reported intent to purchase, although consumer sentiment with regards to these issues appears marginally at odds with official data, where households reined in their spending and private consumption for Q1 17 in the quarterly national accounts slowed materially."