UK consumers are feeling less pessimistic about the economy, according to the latest GfK Consumer Confidence Index, which rose to -17 in July from -23 in June. That reading beat economists' expectations of -21 and marked the biggest month-on-month improvement since November 2023.
The survey, conducted between July 1st and 14th among 2,012 people and reported by Reuters, showed the headline index at its strongest level since January. The improvement was broad-based: consumers reported better views on both the recent economic situation and the outlook for the year ahead.
What's driving the shift?
GfK's Neil Bellamy attributed the uptick to a "fresh start" feeling following the formation of Andy Burnham's new government. While the brief does not specify exact policy details, the change in political leadership appears to have lifted household sentiment after months of subdued confidence.
The improvement in confidence translated into concrete spending intentions. The sub-index measuring major purchase plans jumped eight points to -12, the best reading since the start of the year. That suggests consumers may be more willing to spend on big-ticket items like furniture, appliances, or cars in the coming months.
Consumer confidence is a closely watched indicator because it tends to correlate with household spending, which drives a large portion of UK economic activity. When people feel better about their financial prospects, they are more likely to spend rather than save, providing a boost to retailers, manufacturers, and the broader economy.
Context: A long stretch of gloom
UK consumer confidence has been under pressure for much of the past two years, weighed down by high inflation, rising interest rates, and a cost-of-living squeeze. The Bank of England raised its benchmark rate to a 16-year high of 5.25% in an effort to tame inflation, which peaked above 11% in late 2022. While inflation has since fallen back toward the 2% target, the cumulative impact on household budgets has been significant.
The July reading suggests the worst of the gloom may be passing, but the index remains in negative territory, indicating that consumers are still more pessimistic than optimistic overall. A reading of zero would mean equal numbers of optimists and pessimists; positive readings indicate net optimism.
Other recent surveys have painted a mixed picture. Canada's small business confidence jumped in July, though manufacturers there remained glum. In Europe, French business confidence hit a four-month high in July, driven by a rebound in manufacturing. These parallel readings suggest a broader improvement in sentiment across developed economies, though each country faces its own unique challenges.
What it means for investors
For everyday investors, the improvement in UK consumer confidence is a positive signal for domestically focused companies. Retailers, housebuilders, and consumer goods firms could benefit if the trend continues and translates into higher spending.
However, it's important to keep the data in perspective. One month of improvement does not guarantee a sustained recovery. Investors will want to watch future GfK readings, as well as official retail sales data and inflation reports, to see whether the optimism holds.
The broader economic backdrop remains uncertain. The Bank of England is expected to begin cutting interest rates later this year, which could further support consumer sentiment by lowering borrowing costs. But sticky services inflation and wage growth could delay those cuts.
For now, the July confidence data offers a welcome reprieve after months of gloom. Whether it marks the start of a sustained turnaround or just a temporary bounce will depend on how the new government's policies unfold and whether the economic headwinds continue to ease.
