UK Consumer Confidence Rises Despite Economic Headwinds as Job Market Shows Signs of Recovery

British consumer confidence has witnessed an unexpected upturn, with the GfK index climbing two points to -20 in mid-February, surpassing analysts’ predictions of a static reading. The improvement spans across all measured categories, signalling a broader shift in public sentiment.

The Bank of England’s recent decision to reduce interest rates to 4.5 per cent has emerged as a primary catalyst for this enhanced outlook. The central bank’s move, which included some policymakers advocating for a more aggressive half-point reduction, has helped bolster household optimism regarding personal finances and economic prospects.

Despite these positive indicators, Neil Bellamy, consumer insights director at NIQ GfK, emphasises that many Britons continue to grapple with persistent cost-of-living pressures. The recent uptick in inflation to 3 per cent in January, exceeding previous forecasts, underscores ongoing economic challenges. The Bank of England projects inflation could reach 3.7 per cent by summer, driven by escalating energy costs.

The employment landscape has shown promising signs, with job postings increasing by 7.2 per cent to over 1.5 million in January, marking the first expansion since June. Kate Shoesmith from the Recruitment and Employment Confederation suggests these figures challenge overly pessimistic views about the UK’s economic trajectory for 2025.

However, businesses have expressed concerns about potential price increases and employment freezes in response to Rachel Reeves’s £25 billion rise in employers’ national insurance contributions, scheduled for April. The Office for Budget Responsibility is expected to revise its 2025 growth forecast downward from 2 per cent, while the Bank of England has already halved its growth projection to 0.75 per cent.

Manufacturing sector data from the Confederation of British Industry reveals improved demand and marginal export growth, though Pantheon Macroeconomics’ senior UK economist Elliott Jordan-Doak warns that overall output growth remains subdued, with ongoing concerns about trade barriers maintaining elevated uncertainty levels.