UK consumer confidence unexpectedly improves in May, says GfK

UK consumer confidence picked up in May as optimism on personal finances improved, a survey revealed on Friday.

GfK’s consumer confidence index increased to -1 this month from -3 in April, beating estimates for a reading of -4.

The index measuring changes in personal finances in the past year climbed by one point to +4, five points higher than the same month a year earlier.

The measure for the general economic situation of the UK rose one point this month to -13, 14 points lower than May 2015.

“Despite May’s brave attempt at a recovery with the overall consumer confidence index rising two points from April, we remain in the gloomy world of negative territory this month at -1,” said Joe Staton, head of market dynamics at GfK.

“Optimists will point to the fact our views on personal finances and our willingness to make major purchases are all up on last year. Perhaps this shows consumers are more confident over areas where they have more direct control.”

Staton said concerns surrounding the 23 June referendum on the UK’s membership in the European Union is part to blame for the gloomy economic outlook.

Howard Archer, chief UK and European economist at IHS Global Insight, agreed consumers may be cautious ahead of the referendum.

“Should the UK vote to leave the EU in June’s referendum, the strong suspicion is that consumer spending would be severely pressurized for some time as a consequence of increased uncertainty and likely higher unemployment,” he said.

“It is also very possible that purchasing power could be squeezed by inflation being pushed up markedly by a sharp fall in sterling.”

Archer added that while rising employment and low inflation have supported consumer spending, the gap between earnings growth and consumer price inflation has halved to hurt consumer purchasing power. Reduced perceptions of the economy’s performance over the past year and the outlook for the next 12 months has also affected confidence, he said.