Consumer confidence rebounds from historic lows but experts warn over inflation

Consumer confidence remains “severely depressed” by the cost of living crisis but has made a surprise rebound from historic lows, figures show.

A long-running consumer confidence index by GfK rose by a significant seven points this month, although the headline score remains at minus 38.

It comes as a senior economist warns that interest rates should be raised even further to control inflation, despite financial market expectations that base rates may have peaked.

Catherine Mann, who is also an external member of the Bank’s Monetary Policy Committee (MPC), told a Resolution Foundation event that she believes it is too soon to stop tightening monetary policy because it risks inflation becoming too persistent.

The Bank of England hiked rates to 4 per cent at the last MPC meeting on 1 February, and hinted that it could be nearing the end of its rate hike cycle unless it sees signs of persistent inflationary pressure. Its next meeting is on 23 March.

“An often underappreciated feature of macroeconomics is that expectations about the future can influence the present,” Ms Mann said.

“We have an inflation remit, and we will achieve it one way or another. Failing to do enough now risks the worst of both worlds”

Britain’s consumer prices index inflation rate hit 10.1 per cent in January, easing off the peak of 11.1 per cent it reached in October. But the Bank of England insists its role is to bring inflation down to the 2 per cent target.

The GfK survey found confidence in the general economic situation over the next 12 months is up by 11 points but remains at minus 43 and on a par with last February.

Confidence in personal finances looking ahead to the next 12 months increased by nine points to negative 18, which is four points lower than this time last year. The overall uptick follows the index falling to a near-historic low of minus 45 in January.

Joe Staton, client strategy director at GfK, said: “Despite widely reported headwinds of inflation continuing to outstrip wage rises, and the ongoing household challenge from the cost of living crisis, consumers have suddenly shown more optimism about the state of their personal finances and the general economic situation, especially for the coming year.

“While it’s too early to talk about ‘green shoots of recovery’, the uptick across all measures should be welcomed.”

Linda Ellett, UK head of retail and leisure consumer markets for KPMG, said: “Household budgets are squeezed by higher prices, with energy, broadband and mobile phone costs set to rise for many households in April. Despite the uptick in consumer confidence, levels remain low overall.

“With no end in sight to this higher-cost landscape, many consumers continue to take steps to reduce spend where they can, switching where they shop, what they buy, whilst also cutting back on some activities, such as eating out and takeaways.”