The GfK consumer confidence index climbed to -14 in August, its fourth consecutive monthly rise, as households reported greater optimism about their personal finances, only for sentiment to reverse sharply in the weeks that followed. The brief improvement drew cautious praise from the government’s leading economic figures, but fresh data has since undercut the mood.
A run of gains gives way to a sharper fall
GfK‘s monthly barometer had been climbing since May, when confidence was at a low point. The index rose three points between July and August, reaching -14, with the brightest reading coming from people’s view of their own personal finances over the next 12 months: that sub-index came in at four, a considerable distance from the -23 recorded for respondents’ mood on the general economic outlook over the same period. Confidence in making major purchases also improved among the roughly 2,000 people surveyed.
Neil Bellamy, insights director at GfK, suggested the higher score may indicate that people had ‘greater faith’ in John Healey and Andy Burnham. But he was careful not to overread the run. ‘With inflation back on the rise, now at 2.9 per cent and the highest in four months, and with continued uncertainty in the Middle East and elsewhere, there are still many challenges ahead that will test the mettle of UK consumers,’ Bellamy said. He added that it was ‘too soon to tell’ whether confidence would continue upward.
That caution has since proved well-founded. According to the BBC, the GfK consumer confidence index fell by seven points to -20 after the end of August, erasing more than two months of gains in a single move. The personal finances sub-index, which had been one of the bright spots in the August reading, turned negative again, dropping nine points to -3.
The reversal is a setback for a government that has made the cost of living a centrepiece of its pitch to voters. Healey, who moved to the Treasury after leaving the defence brief, has been leading efforts on household affordability. Burnham has spoken of presiding over a ‘cost of living government’, with policies on household energy bills and tax relief for pub landlords already announced. The Chancellor has also promised businesses further ‘breathing space’, while devolution is expected to be a central mechanism for driving local investment.
GfK consumer confidence index and the retail sector’s take
The August data echoed a similar uptick recorded by the British Retail Consortium around the same period. Helen Dickinson, the industry group’s chief executive, said Burnham and Healey were enjoying a ‘honeymoon boost driven by less pessimism about the outlook’. Her message to the government, however, was direct: ‘The Budget will be the acid test of this government’s real commitment to growth: if the government can reduce retail business costs, from energy bills to business rates, it will be ordinary households who feel the benefit.’
On the inflation picture, the BBC reported that price growth had held steady at 2.2% in August, just above the Bank of England’s 2% target, a reading softer than the 2.9% figure Bellamy cited as a risk when the August confidence data was released. Whether that offers any relief to households will likely depend on whether wage growth and energy costs move in a more favourable direction over the autumn.
The Budget, which Dickinson identified as the real test, now arrives against a backdrop of consumer sentiment that has retreated from its summer high. The GfK consumer confidence index sitting at -20 sets a more demanding baseline for any policy announcements to move against.
