Consumer confidence increasing

What has triggered the improved sentiment?

As the economy shows the first green shoots of recovery, research has shown that consumer confidence is increasing.

Figures from the latest Lloyds Bank Consumer Sentiment Index reveal that consumer sentiment hit a new high of 115 points in August. This figure also represents the highest score since the Index began in November 2010, demonstrating consumers’ renewed faith in the prospects for the UK economy.

Improved consumer confidence seems to have come about as a result of an uplift in figures in a number of sectors. As an example, the fact that UK house prices are rising at an annual rate of 4% may have prompted the nation’s more positive view of the housing market.

According to the Index this figure has increased from 23% in January to 35% in July.

The percentage of consumers who expressed a positive outlook towards the UK’s financial situation also took an upward turn rising to 18% in August. This is up from 16% in July and 11% in January. Again this figure may have been buoyed by figures showing that the UK economy is making a faster than expected recovery.

The Bank of England has recently revised its growth forecast from 0.5% to 0.7% for the current quarter.

Commenting on the Index findings, Patrick Foley, chief economist at Lloyds Bank, argued that improved consumer confidence could play an integral role in fuelling the UK’s economic recovery: “Consumer sentiment has improved again this month.  With spending on essentials remaining relatively stable overall and positive coverage of the improving economic backdrop, this is not surprising, but is very encouraging.  Increasing consumer sentiment may in time embolden consumers to spend, so helping to underpin the wider economic recovery.  In turn, such spending would further help improve the outlook for growth and jobs.”

‘Steady flow of economic good news’ having a positive impact on consumer sentiment
Reflecting figures from the Lloyds Bank Consumer Sentiment Index, the latest GfK consumer confidence barometer has revealed that consumer confidence has reached its highest level since October 2009.

While the barometer revealed that consumers were no more confident about their own finances – which at a reading of -16 was only five points higher than 2012 – they were optimistic about the UK’s financial position overall.

According to GfK managing director of social research Nick Moon, the gulf between these figures could be due to the fact that the consumers have been exposed to a constant stream of positive news about the economy in recent months.

“As more and more official figures show that we are all worse off, with UK living standards at their lowest for a decade, the British public’s economic confidence continues to grow strongly – a conundrum of Alice in Wonderland proportions,” he said.

“The explanation probably lies in the fact that there has been a steady flow of economic good news over the past few months showing the economy growing.”

Consumers loosening their belts – but only on treats

While the improved economy is encouraging consumers to loosen their belts, it seems that consumers are still exercising caution when it comes to their essential purchases.

The latest figures from Barclaycard have revealed that while consumer spending has increased in some areas, including restaurant (+13.3%), cinema and theatre spending (+8.1%) and hotel spending (+6.7%), consumers have actually cut back in several areas of everyday/essential spending. This includes spending on clothing (-0.6%) and groceries (-0.1%).

This may indicate that while consumers are responding to UK growth indicators, they are spending with an awareness that the UK’s economy has been in a state of flux over the last few years.

However, despite the spending dip in some areas, David Gibbons, Regional Director at Barclays in the Midlands, argued that 2013 can still be marked out as ‘the year of recovery’. He said: “Rising consumer confidence pushed spending growth 4% in August as households continued to shake off the economic downturn.  It’s a trend we’ve seen for most of this year and has helped establish 2013 as the year of recovery.”

Posted by: Jessica Odell Categories: Finance, Latest News Comments Off on Consumer confidence increasing

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