UK Consumer Confidence Unexpectedly Deteriorated in January

By Xavier Fontdegloria

U.K. consumer confidence unexpectedly took a dip in January after improving at year-end, highlighting persisting woes as high inflation and rising interest rates erode Britons’ purchasing power.

Research firm GfK said its consumer-confidence barometer declined to minus 45 in January from minus 42 in December, ending a string of three consecutive monthly increases. The reading misses economists’ expectations of a further improvement in sentiment to minus 40.

The deterioration in confidence in January erases part of the gains recorded at year-end, placing it closer to the historic lows of minus 49 seen in September.

The fall in confidence was mainly driven by a worsening assessment of the personal financial situation and the state of the economy over the past year.

However, the major purchase index–which gauges demand for big-ticket items–also fell markedly. Its decline doesn’t bode well because consumer spending is a driving force of the U.K. economy and future growth, GfK client strategy director Joe Staton said.

The only measure that improved is the one gauging views on the personal financial situation over the next year, likely reflecting consumers’ easing inflation expectations.

U.K. 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 at year-end and lower energy prices have somewhat improved the short-term outlook.

Still, inflation concerns continued to mount, according to the survey’s data.

“With inflation continuing to swallow up pay rises, and the prospect of some shocking energy bills landing soon, the forecast for consumer confidence this year isn’t looking good,” Mr. Staton said.

Write to Xavier Fontdegloria at xavier.fontdegloria@wsj.com

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