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UK consumer confidence increased for the second consecutive month in September to the highest level since January 2022, supported by strong wage growth and easing inflation, according to data published on Friday.
The consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose four points to minus 21 in September, up from a record low of minus 49 in September 2022 and the best reading in 20 months, research group GfK said.
The reading was also much better than the drop from August’s minus 25 to minus 27 forecast by economists in a Reuters poll.
Joe Staton, client strategy director at GfK, said: “While this month’s improved headline score is good news, it’s important to note many households are still struggling with the cost of living crisis and that economic conditions are tough.”
The survey was conducted in the first two weeks of September, before Bank of England policymakers voted on Thursday to keep interest rates at 5.25 per cent, the highest level in 15 years.
Sandra Horsfield, economist at Investec, said consumer confidence was supported by “still strong wage growth against a cooling trend in inflation and what continues to be low unemployment”.
Inflation eased more than expected to 6.7 per cent in August, according to official data published on Wednesday. Food inflation, which mainly affects people on lower incomes, also declined to 13.6 per cent last month from 14.8 per cent in July.
Wages meanwhile grew by 7.8 per cent in the three months to July, the fastest pace since records began in 2001.
The recent correction in mortgage rates from their 15-year high, following expectations that the BoE will not increase the cost of borrowing in the near term as much as forecast a few months ago, could also have helped the improvement in confidence.
But economists warned that a weakening economy and an expected rise in unemployment risk reversing the survey’s improved readings in the past two months.
Further pressures on sentiment come from more people facing higher borrowing costs as they come to the end of fixed mortgages whose rates were decided when interest rates were at record lows.
In September, the GfK index was pushed higher by increases across all its categories. Survey respondents reported much brighter views on the general economic picture, while households’ expectations of their personal financial situation in the year ahead continued to improve marginally.
Staton said a four-point increase in the index tracking how likely households are to make major purchases was particularly promising. With less than 100 shopping days until Christmas, the rise “might offer some hope to retailers, who know all too well that many people face financial pressure in the run-up to this year’s festive season”, he said.
Despite the uptick in September and August, sentiments remain in deeply negative territory and below the long-term average of minus 10.
“The reality is that consumer confidence remains suppressed, and the financial mood of the nation is still negative,” said Staton.