UK consumer confidence improved in March on the back of better economic forecasts, but people’s outlook on their own finances worsened, according to data published on Friday.
Research group GfK said its consumer confidence index, a closely watched measure of how people view their personal finances and wider economic prospects, rose this month by two points to -36.
The reading was the highest since March 2022 and was in line with analysts’ forecasts, but remained below zero, indicating an overall decline in confidence.
Respondents to the survey, which ran between March 1 and 14, were more optimistic about the year ahead, with a sub-index measuring general outlook on future economic conditions rising 3 points to -40.
But Joe Staton, director of client strategy at GfK, said the overall improvement hid “persistent concerns among consumers about their personal financial situation”.
Respondent’s forecast for personal finances in the next year fell three points to -21, pointing to the fact that “wages do not keep up with rising prices and the cost of living crisis remains a stark reality for most”, said Staton.
Overall, consumer confidence in March was five points lower than in the same month in 2022, as rising energy bills, higher interest rates and food prices squeezed household budgets over the past year.
The GfK data followed Wednesday’s confirmation from the Office for National Statistics that consumer price inflation rose to 10.4 percent in February, from 10.1 percent in January.
The unexpected uptick in inflation has reinforced fears that price increases are increasingly being driven by domestic pressures on the services sector, which tend to be more persistent than external shocks from high energy prices.
“Just having enough money to live properly and pay the bills remains the number one concern for consumers across the UK,” Staton said.
However, GfK noted that consumers in March reported a slight increase in their willingness to make expensive purchases, as well as the likelihood that they would put money into their savings accounts.
Ashley Webb, UK economist at Capital Economics, a research firm, said that “although real household incomes have been damaged by high inflation, households appear to be supporting real spending by using pandemic savings”. He added that resilience in the labor market also boosted consumer sentiment.
The survey came a day after the Bank of England raised interest rates by 0.25 percentage points to 4.25 percent, marking the central bank’s 11th consecutive hike from December 2021 in response to high inflation.
Webb said that while an increase in base rates “is likely to weigh on consumer confidence, we do not expect interest rates to rise much further from here.”
“However, we expect an easing in inflation and a boost in real household income will support consumer confidence this year.”