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UK shopper confidence has reversed the beneficial properties of the previous two months amid rising unemployment, elevating questions on whether or not a current enchancment in financial indicators will proceed.
The GfK shopper confidence index — a measure of how individuals view their private funds and broader financial prospects — dropped by 3 factors in February to minus 19, the analysis group stated on Friday. Economists polled by Reuters had anticipated the indicator to climb for the third month in a row to a one-and-a-half-year excessive of minus 15.
The autumn in shopper confidence, which is intently monitored as a sign of future shopper spending, contrasts with different indicators pointing to enhancements within the UK economy initially of the 12 months.
In February, the S&P International buying managers’ index signalled the quickest charge of progress within the personal sector since April 2024. In January, the general public sector registered a record budget surplus and retail sales rose sharply.
Neil Bellamy, shopper insights director at GfK, partly blamed the autumn in shopper confidence on the rise in unemployment.
Unemployment rose to a post-pandemic excessive of 5.2 per cent within the three months to December, with youth unemployment growing to 16.1 per cent, the best in additional than a decade.
The pattern was “growing considerations about job safety, significantly given the backdrop of weak wage progress”, stated Bellamy. “With fewer entry-level alternatives obtainable, these on decrease incomes are already feeling the pressure and this pattern dangers undermining the sometimes extra optimistic outlook held by youthful age teams,” he added.
The February decline in confidence, based mostly on interviews performed within the first half of the month, was primarily pushed by weaker perceptions of individuals’s personal funds, with a four-point drop concerning each the previous 12 months and the 12 months forward.
There was additionally a four-point drop within the index monitoring individuals saying it was now time to make main purchases, to minus 14.
The decline in confidence will disappoint many economists who had anticipated decrease inflation and mortgage interest rates to assist enhance sentiment and family consumption. UK shopper spending has been weak for the reason that Covid-19 pandemic, reflecting elevated borrowing prices and inflation, limiting financial progress.
“Many of the macroeconomic determinants of shoppers’ confidence improved in January, with inflation easing and home worth inflation rising,” stated Rob Wooden, economist at Pantheon Macroeconomics, a consultancy. He additionally anticipated an enchancment to minus 15.
Inflation declined to three per cent in January, and the Financial institution of England expects it to fall near its 2 per cent goal in April. The Nationwide home worth index rebounded in January because the Funds uncertainty about property taxation waned.
