British consumers and businesses looked past inflation pressures on their pockets to start the year with a surprise increase in confidence, according to surveys to be published today.
The long-running GfK measure of consumer confidence rose markedly from a negative reading of 13 – its lowest point in four years – in December to hit a negative reading of nine points.
A survey by Lloyds Bank of more than 1,200 British businesses found confidence has risen to a nine-month high driven by a big boost in economic optimism – albeit still well below average levels seen before the EU referendum in June 2016.
Read more: Consumer confidence proves resilient to spending pressures
The improvements in confidence come in spite of the squeeze from inflation, which has seen real wages fall as prices rise. Inflation has remained above three per cent for the past four months, well above the growth in pay offered to workers.
Joe Staton, GfK’s head of market dynamics, said he was “pleasantly surprised” by the pick-up in consumer confidence, adding that the sunnier outlook may reflect the continued resilience of the UK economy.
“People maybe looked at their finances and thought we haven’t really fallen off a cliff,” he said.
Another reason underpinning the positive movement may be continued record employment, a strong predictor of consumer confidence. Employment hit 75.3 per cent in October, according to the Office for National Statistics.
Meanwhile, some progress in the Brexit negotiations has provided a boost to the economic outlook from businesses, the Lloyds survey will show.
Hann-Ju Ho, a senior economist for Lloyds Bank Commercial Banking, said: “Although business prospects have softened from last month’s high, overall business confidence has started the year on a strong footing.
“The sharp increase in economic optimism signals that downside risks have eased and the economy is likely to continue to expand in first quarter this year.”
However, data from the Recruitment and Employment Confederation (REC) will today show employer confidence in the UK economy is at its lowest since the referendum, with a net negative balance of 14 points.
A third of employers still cite political and economic uncertainty as the main challenge to their business, the REC found.