UK consumer confidence climbs after rapid vaccine rollout

A quick vaccines rollout and brighter outlook for the economy has boosted UK consumer confidence to the highest level in nearly a year.

The UK consumer confidence index, a measure of how people view the state of their personal finances and wider economic prospects, rose 5 points to an 11-month high of minus 23 in February, according to closely watched data published on Friday by research company GfK.

The uptick, based on data collected in the first 12 days of February, was stronger than the consensus forecast of a small rise to minus 27 forecast from a Reuters poll of economists.

The improved sentiment has fuelled hopes of a strong rebound in consumer spending. Joe Staton, GfK’s client strategy director, said that the jump in the headline confidence score, driven by a 14-point rise in the outlook for the economy over the coming year, made it “tempting to talk of a return to normality”.

He said the two-point rise in consumers’ view of their personal financial situation was particularly encouraging as this would feed through into spending and in turn “fuel the post-pandemic economy”. The rise in confidence was also underpinned by a five-point increase in consumers’ view on whether now was a good time to make major purchases.

The indices are calculated as a difference between the proportion of those reporting improvements and those reporting a deterioration.

Consumer spending was the driver of the strong economic rebound in the third quarter and the anticipated rebound is expected to boost GDP growth from the spring.

According to the latest official data, household deposits were up 10 per cent at the end of December compared with the same month last year. The figure suggests there is considerable pot of money that could flow into the economy if consumers are confident enough about their income to shrink their savings.

In forecasting economic and inflation growth, James Smith, economist at ING, said a lot would depend on consumer spending but he was in “little doubt” there was “pent-up demand waiting to be unleashed once the economy reopens on a sustained basis”. 

But Michael Saunders, external member of the Monetary Policy Committee at the Bank of England, urged caution on Thursday as he warned the higher levels of savings were largely concentrated among higher income groups, which could limit a consumer-led recovery.

“Aggregate household savings have risen markedly during the pandemic [but] more people in total report that their savings have fallen rather than risen,” he said in a speech to the Resolution Foundation think-tank.

The increase in household savings “is concentrated at the top end of the income scale and does not represent the experience of many people”, he added.

Latest experimental data published by the Office for National Statistics on Thursday showed that consumer spending was down by nearly 30 per cent in the week ending February 11, a larger drop than in the previous lockdown in November.

Spending in categories labelled as “delayable”, which covers clothing and furniture, and “social”, which includes bars and restaurants, fell by half compared with February last year, pointing to strong potential for a rebound when the economy reopens.