A gloomy outlook about the state of the UK economy is weighing down on UK consumer confidence as Britons try to look on the bright side on their own finances.
The balance of people reporting a positive attitude towards their personal finances edged up to two per cent in March, according to GfK, keeping the overall measure of confidence level compared to the previous month.
However, a balance of 20 per cent of consumers have a negative outlook on the UK economy over the next year, with inflation set to dent real incomes.
Joe Staton, head of market dynamics at GfK, says: “Consumers remain cagey about the state of their personal finances and the general economic picture for the UK, especially as wage growth fails to keep pace with the rising costs of living.”
Consumer price inflation rose to 2.3 per cent in February, as the devaluation of sterling after the Brexit vote continues to feed through to higher prices.
The reaction of consumers to the rise in prices will be key to determining how the UK economy performs in the coming months.
However, there has been little so far to prompt consumers to rein back their spending, according to Simon French, chief economist at Panmure Gordon.
The rise in inflation, while not trivial, is not historically high, while the official start of the Brexit process did not shed much light on what the UK economy will face in the coming years.
French said: “We haven’t really learnt anything new when it comes to households deciding what to do.”
A similar dynamic played out in the aftermath of the referendum. Strong consumer spending in the second half of 2016 saw growth accelerate during the year, defying the predictions of economists, including the Bank of England.
The steep fall in consumer confidence measures after the referendum was one of the reasons the Bank thought spending would fall, before optimism rebounded quickly.
A dip in the underlying trend in retail sales growth provided one of the first clues this may be changing, but so far there has not been an incontrovertible sign inflation is denting demand from consumers.