The Bank of England’s fleet of interest rate cuts have helped lift consumer confidence in personal finance, a leading survey has suggested, but the prospect of high inflation has left sentiment vulnerable.
Bank officials are closely monitoring the effects of looser monetary policy on consumption and confidence levels across the UK.
GfK’s flagship consumer confidence survey has suggested that some of the benefits are beginning to be felt by Britons worried about their personal finances.
Its overall index score remained in negative territory at minus 17, which represented a small increase from July.
But individuals were more positive about their personal finances as the indicator, which is calculated using data taken from questions on whether respondents expect to see improvements, crept higher to a reading of 5.
The savings index, by comparison, dropped by four points to 30, which is set apart from negative scores on sentiment about the UK economy.
The survey of over 2,000 individuals showed that people were more downbeat about their personal finance and the UK economy over the last twelve months.
Neil Bellamy, consumer insights director at GfK, said the cut in interest rates, which brought borrowing costs down to their lowest level in two years, was likely behind the improvement in consumer confidence.
“The improved sentiment on personal finances is welcome, but there are many clouds on the horizon in the form of inflation – the highest since January 2024 – and rising unemployment,” Bellamy said.
“There’s no shortage of speculation, too, about what the Autumn Budget will bring in terms of tax rises.
“Consumer confidence continues to move in a very narrow band, and there’s no sense that it is about to break out into fresher, more optimistic territory.”
Bellamy added that consumers were still in “wait-and-see mode” with shock announcements or developments likely to radically turn sentiment.
Interest rate cuts ‘uncertain’
Monetary policy-makers keep an eye over surveys published by GfK as a clear indicator of demand levels, given it provides a view on whether Britons are ready to spend big or save more.
The Bank now faces a struggle in balancing interest rate cuts with bringing inflation down, which hit 3.8 per cent in the 12 months to July.
No more cuts are expected for the rest of this year, according to market predictions, which previously believed they could fall as low as 3.5 per cent by December.
The three-way split on the Bank’s Monetary Policy Committee (MPC) has cast a shadow on the future path of interest rates, with Governor Andrew Bailey admitting future cuts were “more uncertain”.
The November meeting, which has the highest chance of an interest rate cut, has been scheduled for the first week of the month while the date for Rachel Reeves’ Autumn Budget, which could impact monetary policy decisions, is still unknown.