United Kingdom: Consumer confidence deteriorated unexpectedly in January

The decline in confidence was mainly driven by a deterioration in the assessment of personal financial situation and the state of the economy in the past year

British consumer confidence drops unexpectedly in January after a year-end improvement, highlighting lingering problems as soaring inflation and rising interest rates erode Britons’ purchasing power.

Research firm GfK said its measure of consumer confidence fell to -45 in January from -42 in December, ending a streak of three consecutive monthly increases. The reading was lower than economists’ expectations for a further improvement in sentiment to -40.

The deterioration in confidence in January erased part of the gains recorded at the end of the year, bringing it closer to the historic lows recorded in September at -49.

The decline in confidence was mainly driven by a deterioration in assessment of personal finances and the state of the economy over the past year.

However, the main shopping index — which measures demand for big-ticket items — also fell sharply. Its decline does not bode well because consumer spending is the driving force behind the UK economy and future growth, said Joe Staton, director of client strategy at GfK.

The only metric that improved was a gauge of opinions about personal financial status in the coming year, likely reflecting consumer expectations about inflation.

UK inflation fell to 10.5% in December from 10.7% in November, its second consecutive monthly decline, as energy prices moderated. Meanwhile, the economy performed better than expected by the end of the year and lower energy prices improved the near-term outlook to some extent.

However, concerns about inflation continued to mount, according to survey data.

“With inflation continuing to eat away at wage increases and some horrific energy bills to undo soon, the outlook for consumer confidence this year doesn’t look good,” Staton said.

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