U.K. consumer confidence improved more than expected in February, a sign of strength even as households continue to feel the pinch from high inflation and climbing interest rates.
Research firm GfK said its consumer-confidence barometer rose to minus 38 in February from minus 45 in January, the highest reading since April and more than reversing a dip last month.
The reading, the largest monthly rise in sentiment since March 2021, beat economists’ expectations of a smaller improvement in sentiment to minus 43.
However, the confidence level is still severely depressed and the mood remains a long way off the levels before coronavirus-related lockdown measures, GfK client strategy director Joe Staton said.
“Many challenges remain and this may be nothing more than a bubble of hope–and bubbles always burst,” he said.
The rise in confidence was mainly driven by an improved assessment of personal financial situation and in the state of the economy over the next 12 months, according to GfK.
U.K. inflation eased to 10.1% in January from 10.5% in December, its third fall in as many months, as fuel prices moderated, suggesting price pressures are abating.
The Bank of England, which raised interest rates to 4.0% in early February, has also signaled that it might soon pause its rate-hike cycle amid signs that economic expansion is softening.
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Dow Jones Newswires reported on Thursday that consumer confidence in the U.K. rose more than forecasted in February, indicating an improving economy.
The GfK Consumer Confidence Index set in February at -12, four points higher than the forecasted -16, due to an increase in consumer expectations of the general economic situation for the next 12 months. This marked the fourth consecutive month of consumer confidence improvement, following January’s -14 strong reading.
The index also showed that peope’s perception of their personal financial situation over the last 12 months saw the second best reading in three years. Britons were also more optimistic about the financial situation for the upcoming 12 months, which climbed to -4, the highest reading since December 2016.
Joe Staton, the head of market dynamics at GfK, noted that Britons’ assessment of their personal finances has shown an “encouragingly positive trend” over the last three months, further supporting the recent confidence rise.
Though the U.K. has seen a slowly strengthening British pound in the month after the Brexit deal was sealed with the EU, consumer confidence closed the month of February at slightly lower levels than their European counterparts, indicating the deal’s finalization should not be taken as a sign of economic success.
Analysts speculated that the loosening of COVID-19 restrictions in the U.K. could have been a contributing factor to the rise in consumer confidence, although Staton acknowledged that consumers typically express optimism even in more difficult economic times. It could take up to a year for the full impact of the Brexit deal to be seen.
