UK consumer confidence better than expected as non-food prices stay low
Inflation may be rising and a general election looming but UK consumers are feeling more upbeat than might have been expected, that’s according to the latest GfK Consumer Confidence Index. It rose two points to minus five despite expectations of a fall to minus eight.
That reading, based on a survey of 2,000 people, does not sound like confidence is exactly brimming over. But GfK said consumers are feeling better than expected about their own personal financial situations, the wider economy, and future plans for shopping and saving.
Joe Staton, head of market dynamics at GfK, said: "Despite life becoming more expensive with inflation hitting its highest level in four years and wages dropping in real terms for the first time in three years, stagnant living standards haven't yet significantly dented consumers' spirits - when it comes to retail therapy we remain happy to splash the cash as sales jump ahead of expectations."
The index measuring consumers' changes in personal finances over the last 12 months rose by one point compared to April, while the measure that looks at the forecast for the 12 months ahead rose by two points.
And the measure relating to the general economic situation of the UK in the past 12 months rose three points to minus 20 compared to April, although that was seven points lower than in May 2016.
Staton said that while the index is undeniably in negative territory, at times of economic uncertainty and with Brexit on the horizon, large falls would have been likely.
But he warned that a downturn could be ahead. Consumers had been paying off debts after the global financial crisis, but since 2014, unsecured borrowing has steadily increased and reached record highs in May.
Some of the upbeat feelings could be due to the fact that the much-publicised rise in inflation does not seem to be affecting certain product categories in a meaningful way at present. At the same time as the GfK report was released, the BRC-Nielsen Shop Price Index reported deflation of 0.4% in May, after the 0.5% fall in April, even though the fall was the slowest since November 2013.
Food inflation is definitely kicking-in but non-food category prices are still being cut. This is partly linked to retailers having taken out hedging contracts to protect themselves against exchange rate fluctuations. But it could also be due to discounting in order to shift inventor, something that has been particularly noticeable in the fashion sector.
Yet with a raft of brands, including Next and Karen Millen, warning that prices will rise this year, price tags shocks are likely to be seen by the autumn season.
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