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UK consumer confidence "could keep climbing, adding more fuel to economic engine"

ended 23. August 2024

The latest GfK data shows that overall UK consumer confidence remains at -13. Although negative, it's worth noting that this is the highest point since September 2021 and is back at similar levels as in 2019 — a time when GDP growth was also strong. Considering these levels and consumer confidence’s historically strong correlation with GDP growth, there may be more upgrades to GDP growth forecasts for the rest of 2024 and even going into 2025.

Newspage asked experts for their views, below.

3 responses from the Newspage community

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Editor
Wes Wilkes
CEO at IronMarket Wealth
The UK consumer is strutting with newfound swagger, and for good reason. It's a perfect storm of positive economic indicators — inflation is cooling off, interest rates are poised to dip, and the economy's showing signs of life. But the real reason for consumer confidence rebounding so swiftly is down to one key metric — real wage growth. Months of robust pay increases have left wallets feeling more plump, especially as inflation continues to subside.

This isn't just a fleeting moment of feel-good economics. We're potentially looking at a sustained period of growth stretching well into 2025. As the Bank of England continues its rate-cutting journey, consumer confidence could keep climbing, adding more fuel to the UK's economic engine.

However, let's not pop the champagne just yet. The path to sustained prosperity is paved with policy decisions. One wrong move from the MPC could turn this economic renaissance into a fleeting memory.
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Editor
Gabriel McKeown
Head of Macroeconomics at Sad Rabbit - Substack Newsletter
With consumer confidence in the UK returning to pre-pandemic levels, there is renewed optimism surrounding GDP growth forecasts for the remainder of 2024.

Historically, consumer confidence has been a reliable indicator of economic activity, with a rising trend in the GfK index often correlating with stronger consumption expenditure, consequently boosting GDP.

The BoE's recent rate cut, coupled with lower yield curves, has sparked a mortgage rate renaissance, consequently putting a spring in consumers' steps. Combined with positive wage growth, and Britons have got a recipe for financial optimism. This consumer confidence cocktail isn't just good news for wallets — it's also a potential boost for the struggling retail sector and a turbocharge for the broader economy. As we roll into H2, this trifecta of favourable conditions could be the wind in the sails of UK's economic ship as the leading G7 star.
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Anita Wright
Independent Financial Adviser at Ribble Wealth Management
Approximately 60% of the UK's GDP is driven by consumer spending. However, there's a difference between consumers feeling confident and actually being able to afford their confidence. Often, consumers become overconfident and overextend themselves financially. For example, following the pandemic, many rushed to buy homes with bigger gardens and additional rooms, assuming that interest rates would remain low. According to Bluestone Mortgages, 24% of UK adults have missed one or more mortgage payments in the last 12 months. This indicates that only a portion of confident consumers can truly afford their purchases. Despite these challenges, GDP figures have improved compared to last year, and if similar results are achieved in Q3 and Q4, a 2.4% growth rate — which is impressive by UK standards — could be realised. However, it's important to note that net consumer credit borrowing rose to £1.9bn in January, up from £1.3bn in December, signaling a growing reliance on credit.