UK consumer confidence picks up, business confidence wanes

UK consumer confidence improved but business confidence fell to a five-month low in September, the European economic sentiment indicator revealed on Thursday, as services weakness was not offset by an improvement in construction and retail.

The European Commission’s ESI for the UK slipped to 109.2 from 109.6 in August, primarily due to a decline in confidence in the services sectors and reduced optimism in the industrial sector.

Consumer confidence, as measured by a seasonally-adjusted EC indicator ahead of the non adjusted GfK’s consumer confidence index scheduled for release on Friday, improved to its highest level since April.

The main boost to consumer sentiment was a perceived decline in the risk of unemployment, amid the UK's 42-year low joblessness, rather than improved optimism about the outlook for the economy or personal finances.

There were implications for inflation for the coming months, with a surge in the net balance of food retailers expecting to raise prices over the next three months to +86 in September, from +30 in August.

This suggests, said economist Sam Tombs at Pantheon Macroeconomics, "that supermarkets’ willingness to absorb higher import prices is wearing thin".

He noted that the net balance of general retailers that expect to raise prices fell to an 11-month low, "suggesting that core goods inflation is near its peak".

"In addition, evidence that underlying price pressures are firming up remains lacking," he said, pointing to a net balance of +13 of retailers expect to raise prices over the next three months, in line with the average of the last 12 months.

"All told, then, we continue to think that CPI inflation will edge up to 3.1% in October, from 2.9% in August, before falling back swiftly to the 2% target in late 2018."