Consumer confidence in Britain reaches ten month high as interest rate cuts offer relief

Consumer sentiment in Britain has climbed to its highest level in ten months, following recent interest rate reductions that have eased pressures on household budgets. The S and P Global UK consumer sentiment index, released for August, posted a reading of 47, up from 45.1 in July. Although the index remains below the positive threshold of 50, this is the strongest showing since the October budget. The improvement comes on the heels of a base rate cut from 4.25 per cent to 4 per cent, signalling a modest revival in confidence among UK households.

S and P economists noted that August recorded the smallest drop in sentiment since July 2024, when post election optimism briefly buoyed consumer outlook. The survey results are best viewed in the context of the long term average for the index, which stands at 44.3 since its inception in 2009. Consumers are feeling not only less constrained financially but also more optimistic about the year ahead, with the outlook the least downbeat in nine months. These findings point to a subtle but meaningful shift in the financial mood across the country.

Both the assessment of current finances and expectations for personal circumstances over the next twelve months showed marked improvements. Measures of disposable income and willingness to make significant purchases edged higher, though they remain in negative territory. A notable bright spot emerged in perceptions of the jobs market, with consumers expressing their highest confidence in employment security for eleven months, and the strongest wage outlook since the start of the year.

Despite the boost to sentiment, challenges remain. Consumer spending retains a level of robustness, thanks in part to increases in average pay that continue to offset concerns surrounding rising inflation and the prospect of higher taxes in the coming autumn. Inflation is anticipated to tick up, with figures due showing a rise from 3.6 per cent in June to between 3.7 and 3.8 per cent in July. Escalating food prices, which tend to have a disproportionate impact on perceptions of living costs, are also contributing to worries.

It is worth noting that not all consumer sentiment measures tell the same story. The Which insight tracker indicated a sharp fall, dropping from minus 9 in the three months to July 2024 to minus 40 in the same period this year. A clear majority, 56 per cent of those surveyed, believe the economy will deteriorate, compared to 16 per cent expecting improvement. While broad sentiment is still cautious, the latest S and P data suggests that the recent easing of monetary policy is beginning to filter through to household confidence, offering hope for a more stable financial outlook in the months ahead.