Falling rates and higher real incomes to support consumer confidence

(Alliance News) - UK consumer confidence is expected to pick up in the coming months, after stalling in August, as real incomes continue to rise and borrowing costs fall, analysts on Friday said.

The GfK consumer confidence index registered a score of negative 13 points in August, the same as July. The index was compiled by research house GfK from a survey among 2,003 adults in the UK, with interviewing conducted between August 1 and 15.

Within the flat score, readings on personal financial situation increased both for the past 12 months and the coming 12 months. What's more, the major purchase index also rose. However, the view on the general economic situation declined, both looking back and ahead.

"On the one hand, our expectations for the UK's economy are down for the first time since February, with this measure registering a four-point decrease to minus 15," commented GfK Client Strategy Director Joe Staton. "There's a three-point drop in how consumers view the economy last over the past year too.

"At the same time, there are strong personal financial expectations for the coming year with a three-point uptick in this measure to plus 6. This more positive outlook may be due to a mortgage friendly interest rate cut at the beginning of August – and hopes of more to come."

Staton noted that the three-point rise in the major purchase index is "great news for retailers", suggesting a willingness to buy big-ticket items.

Matt Britzman, senior equity analyst, Hargreaves Lansdown noted while the headline figure was unchanged, households have greater confidence in their finances and are more willing to go out and spend.

"Interest rate cuts are likely the main catalyst as mortgage rates have eased, providing some welcome relief to those caught on variable rates," he suggested.

Elliott Jordan-Doak at Pantheon Macroeconomics explained that although the composite index was unchanged in August, consumer confidence is still at its highest level since September 2001.

He expects it to increase further over the rest of the year as real incomes continue to rise and borrowing costs fall.

He pointed out real average weekly earnings excluding bonuses rose by 3.2% year-over-year in the three months to June and will likely continue strongly as inflation remains well below wage growth.

He also expects the downward trajectory of interest rates to filter through to consumer confidence in the coming months.

"We expect the [Monetary Policy Committee's] second cut this year to come in November, with three more cuts in 2025. These reductions in borrowing costs should help support consumers’ confidence over the course of both this year and next."

By Jeremy Cutler, Alliance News reporter

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