UK consumer confidence falls in fear of inflation

Consumer confidence in the UK dipped in January with households spending more on essential items because of price rises.

The European Commission’s latest economic sentiment index found that consumer confidence fell in January from -4.6 to -5.1, while a separate Lloyds Bank survey, based on data from its customers, found spending on essential items, such as food and fuel, rose 1.8 per cent over the year to December. In the year to November, the figure was 1 per cent.

Spending on fuel increased 9 per cent over the year to December, against an annual figure of 5.9 per cent in November, and grocery spending rose 2.9 per cent, its fastest rate since 2013.

Downbeat view

Samuel Tombs from Pantheon Macroeconomics said: “Consumers have become more downbeat primarily because they anticipate a burst of high inflation.

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“The balance of households expecting prices to rise over the next year increased in January to its highest since January 2011.”

The fall in the value of the pound since the Brexit vote in June, coupled with rising global oil prices, are expected to push up inflation.

Inflation was below 1 per cent for almost two years but picked up at the end of 2016, reaching 1.6 per cent in December. The Bank of England has forecast it will approach 3 per cent this year, putting pressure on household spending power because wages are not expected to rise as quickly.

Spending on fuel has risen particularly sharply over the past year as oil prices have picked up from the lows of early 2016.

Consumer spending has powered economic growth over the past few years but, in the face of rising inflation, 56 per cent of those interviewed by Lloyds said they planned to cut back on non-essential spending in January. GfK, which compiles the consumer confidence barometer on behalf of the commission, reported that the share of people who said now was the right time to make a significant purchase fell in January.

Luxury items

“The surge in essential spending during the last few months shows no sign of abating,” said Robin Bulloch, managing director at Lloyds. “With a majority of people expressing concern about current levels of inflation, it’s no surprise that most consumers plan to cut back on luxury items.”

Despite falling in January, the commission’s consumer sentiment index remains above its long-run average. Since it began in 1985, it has averaged -8.6. Immediately after the UK voted to leave the EU, the index dropped from -1.2 in June to -9.2 in July 2016. – Copyright The Financial Times Limited 2017