An interest rate cut and news of surprisingly stronger economic growth over the spring has helped push consumer optimism up to the highest level since last Christmas, a closely watched survey showed.
Consumers grew increasingly confident about their personal finances in August and said that they intended to save less in the coming year, suggesting that the Bank of England’s latest rate cut this month has shifted their behaviour.
An index of consumer confidence produced by GfK, a research outfit, inched up by two points to -17 in August from -19 in the previous month, the best reading since last December.
The rise is likely to have been driven by two pieces of positive economic news in August: the Bank of England lowered rates by a quarter point to 4 per cent, the fifth cut in a year, and the Office for National Statistics said that the economy expanded by 0.3 per cent in the three months to June, better than expected.
Consumers’ perception of how the economy had performed over the past year improved marginally in August, GfK said.
Neil Bellamy, consumer insights director at GfK, said: “The biggest changes in August are in confidence in personal finances. This is likely due to the Bank of England’s August 7 cut in interest rates, delivering the lowest cost of borrowing for more than two years.”
The findings were based on a survey of 2,002 adults carried out between August 1 and 14, before data from the ONS showed that inflation leapt to 3.8 per cent in July, the highest reading since January 2024.
Speculation about further tax increases at Rachel Reeves’s autumn budget also gathered momentum in the days after the GfK survey concluded.
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Bellamy said: “The improved sentiment on personal finances is welcome, but there are many clouds on the horizon in the form of inflation — the highest since January 2024 — and rising unemployment. There’s no shortage of speculation, too, about what the autumn budget will bring in terms of tax rises.”
He added that households were in “wait-and-see mode, and any surprises could result in sudden and sharp changes in sentiment”.
Sentiment data is closely watched by economists as it signifies whether consumers will increase or decrease their spending in the coming months. This week, the ONS delayed the publication of its monthly retail sales data by two weeks. It was originally due for release on Friday.
Retail sales remain below their pre-pandemic levels, according to the ONS, which economists think has held back economic growth. The Bank of England may cut rates once more this year to 3.75 per cent, which could boost consumption.