The Consumer Confidence Recovery Continues

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UK consumer confidence improved further in April, confirming the upward trend of the past year and boosting the odds of stronger economic growth in the coming months.

The GfK measure of consumer confidence increased to -19 from -21, a bigger rise than forecast.

The net balance for personal finances in the next 12 months was unchanged at 2, while the economic situation ahead rose 2 points to -21.

"All of the underlying five measures this April are significantly better than they were last April," says Joe Staton, Client Strategy Director at GfK.

Improvements in consumer confidence are attributed to improving household budgets as inflation falls and the anticipation of further tax cuts.

"Expectations for interest rate cuts at the Bank of England, maybe as soon as mid-year, are also helping," says Matt Lewis at TopMoneyCompare.com.

Consumer confidence is nevertheless some way off "the much firmer sentiment last seen in the period before Brexit, Covid and the conflict in Ukraine," cautions Staton.

He says there is a lot of ground to make up, and caution is needed in the face of continuing economic and fiscal challenges, and revised views on when the Bank of England might cut borrowing costs.

"But Spring has arrived and maybe consumer confidence is, at last, slowly becoming brighter and heading in the right direction," says Staton.

UK inflation has fallen from nearly 9% to nearly 3% in a year, which has seen the UK Misery Index (unemployment + inflation) fall to its lowest level since 2021.

George Vessey, Lead FX Strategist at Convera, says consumer confidence has a strong correlation with the Misery Index, and he expects morale to keep improving, especially once the Bank of England starts cutting interest rates.

"Markets continue to price in just 40 basis point of rate cuts by the BoE this year, with the first move expected in August. We wouldn’t be surprised to see a June cut though and at 75 basis points in total this year," says Vessey.