Lower inflation boosts UK consumer mood

British consumers’ mood perked up this month as lower inflation made individuals less downbeat about the outlook for their personal finances, although sentiment remained poor overall due to concern about the wider economy, a recent survey showed.

The GfK consumer sentiment indicator rose to -25 in August from a three-month low of -30 in July, its biggest rise since April although still below the average of -10 for the survey, which has been running since 1974.

Economists polled by Reuters had forecast a smaller increase to -29.

“While the financial pulse of the nation is still weak, these signs of optimism are welcome during this challenging time for consumers across the UK,” said Joe Staton, GfK’s client strategy director.

Households’ expectations for their personal financial situation over the coming year rose to -3 from -7, well above the reading of -31 a year ago when energy prices were soaring and the government had yet to announce its subsidy programme.

Consumer price inflation dropped to 6.8 per cent in July, down from a 41-year high of 11.1 per cent reached in October 2022, although still higher than in all other major economies.

Wage growth is now close to matching inflation for the first time in nearly two years – though rapid rises in salaries worry the Bank of England, which raised interest rates to a 15-year high of 5.25 per cent this month.

The improvement in the GfK survey contrasts with other recent downbeat data on consumer spending.

Retail sales volumes fell 1.2 per cent in July – partly reflecting unusually wet weather after a heatwave the month before – while industry data provider NIQ said supermarket spending in the four weeks to Aug. 12 grew at the weakest pace since January.

The GfK data was based on a survey of 2,001 people conducted between Aug. 1 and Aug. 10.

Separate data on Friday from Britain’s Recruitment and Employment Confederation showed there were 29 per cent more new job advertisements in early August than the same time a year before. The survey also showed 2.3 million active job postings – 60 per cent more than a year earlier and more than double the number of vacancies reported by the Office for National Statistics for the three months to July.