Slower U.K. Inflation Gives Consumers Hope About Their Finances

(Bloomberg) -- Slowing U.K. inflation and signs of better wage growth are lifting consumer confidence, and households are the most upbeat about their finances since before the recession.

According to GfK’s monthly index, the outlook for personal finances jumped to 10 this month -- the highest since October 2007 -- from 5 in February. There was also a small improvement in how households expect the economy to perform.

There was less good news on the business front, with Lloyds Bank saying its measure of corporate sentiment declined in March. Economic optimism also slipped. The Confederation of British Industry, meanwhile, said private-sector growth slowed in the first quarter.

The better consumer mood comes in the wake of a sharper-than-expected drop in the U.K.’s inflation rate and a pickup in pay growth in recent data. It may also provide some hope to ailing U.K. retailers, who’ve warned of a “challenging” environment and are showing signs of financial distress.

While the figures suggest households are shaking off some of the gloom that’s marred the consumer outlook over the past year, it’s just one month of gains. GfK’s overall measure of consumer sentiment is still below zero and it might not take much to knock it lower again.

“The prospect of wage rises finally outstripping declining inflation, high levels of employment with low-level interest rates, and finally some movement on the Brexit front appear to have boosted our spirits,” said Joe Staton at GfK. He added that it’s “still a little early to be talking about green shoots.”

The CBI’s survey of private-sector companies showed the net balance reporting higher output fell to eight between January and March from 20 in the three months through February, though a pickup is expected in the second quarter on retail and services.

To contact the reporter on this story: Fergal O'Brien in London at fobrien@bloomberg.net.

To contact the editors responsible for this story: Fergal O'Brien at fobrien@bloomberg.net, Andrew Atkinson, Lucy Meakin

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