Consumer confidence falls unexpectedly in February

British consumer sentiment fell for the first time in four months in February as households took a gloomier view of their recent personal finances and the broader economic outlook, a survey showed on Friday.

The GfK consumer confidence index, the longest-running survey of its kind in Britain, dropped by 2 points to -21 in February, below all forecasts in a Reuters poll of economists which had forecast a small rise to -18.

The only component of the index not to fall was households' expectations for their personal finances over the coming year, which was unchanged at zero.

"This metric is key to understanding the financial mood of the nation because confident householders are more likely to spend despite the cost-of-living crisis," GfK client strategy director Joe Staton said.

All components of the index are up strongly from a year ago, when inflation was only just off a 41-year high of 11.1 per cent and market turmoil under the short-lived premiership of Liz Truss was fresh in many households' minds.

Prime Minister Rishi Sunak, Truss' successor, will be hoping that a March 6 budget can help narrow the Conservative Party's large polling deficit versus the opposition Labour Party, ahead of a national election he is expected to call later this year.

Household consumption in Britain has still not returned to its level before the COVID-19 pandemic when adjusted for inflation - similar to the picture in some other European countries but in contrast to the growth in living standards in the United States.

Consumer price inflation was 4 per cent in January, and the Bank of England expects it to return to its 2 per cent target during the second quarter of the year due to falling energy prices.

However, the BoE is not ready to cut interest rates from their 16-year high of 5.25 per cent as it is worried that rapid wage growth and services price inflation will push inflation back towards 3 per cent later in 2024.

Joe Staton, GfK’s client strategy director, said, “The overall index core seen over recent months stalled slightly in February due to a fall across most measures. However, the good news is that optimism for our personal financial situation for the next 12 months has not slipped back.

“Although registering again at zero, this is a significant improvement on the -18 score from February last year. This metric is key to understanding the financial mood of the nation because confident householders are more likely to spend despite the cost-of-living crisis. Looking forward, it will be interesting to see what the forthcoming Budget delivers in terms of taxation and inflation.

“These are important issues to everyone – especially in an election year. The recent performance of the economy will play a crucial role in determining results at the ballot box. All the measures this February are better than a year ago, but consumer confidence alone will not carry us into a brighter economic future.”