UK economic sentiment deteriorates in May

Economic sentiment in the UK deteriorated in May, according to data released on Tuesday.

The European Commission's economic sentiment indicator for the UK fell to 94.5 this month from 99.3 in April.

Samuel Tombs, chief UK economist at Pantheon Macroeconomic, noted that business and consumer confidence is diverging.

"The gap between consumer and business confidence has grown from a fissure to a chasm," he said.

"The composite index of consumer confidence - a seasonally-adjusted version of the GfK data, released on Friday - rose to a six-month high in May. Households’ confidence in the outlook for their personal finances picked up and now slightly exceeds its 30-year average again. By contrast, our re-weighted version of the business confidence indices - where the weights reflect sectors' shares of GDP - fell to its lowest level since April 2013 and points to year-over-year GDP growth falling to about 1.0%, from 1.8% in Q1.

"Confidence among services firms dropped particularly sharply in May, driven largely by falling business volumes. The disconnect between household and business confidence doesn’t look set to be eliminated through the job market; the employment intentions balances edged down in May but collectively were only slightly below their 22-year average. For now, then, the impact of corporate pessimism looks set to be confined solely to capex, with steady growth in households’ spending ensuring that GDP continues to grow at a slightly above-trend rate."