UK Households More Positive About Their Finances After Rate Cut

(Bloomberg) -- Britons are growing increasingly optimistic about their personal finances after the Bank of England cut interest rates this month and signalled more relief is on the way.

GfK said households’ perception of their financial situation and their willingness to spend both rose in August. Its overall consumer confidence index was unchanged at a three year high of -13, however, as people turned more gloomy about the economic outlook.

Joe Staton, client strategy director at GfK, said the better picture for households “may be due to a mortgage friendly interest-rate cut at the beginning of August – and hopes of more to come.” He added that the jump in the major purchase index “is great news for retailers.”

Households are feeling better off because wages have been rising faster than prices for a year and inflation is cooling. Mortgage costs have been moderating on expectations of rate cuts, helping to ease cost-of-living pressures on homeowners.

The BOE cut rates for the first time in over four years on Aug. 1, signaling the start of a cautious easing cycle. Money markets are pricing a quarter-point reduction by November and a strong chance of another to follow by year-end. 

Underscoring better personal sentiment, there was a three-point increase in GfK’s major purchase index, which measures how keen households are to spend on big-ticket items.

The British economy has outperformed all of its Group of Seven peers so far this year, with growth of 0.7% in the first quarter and 0.6% in the second. In August, private sector companies reported their best growth in four months, according to the S&P Global’s composite Purchasing Managers’ Index.

However, household confidence in the general economic situation over the next 12 months dropped four points to -15, GfK said. This may reflect the prospect of tax rises after the new Labour government claimed its was left a £16.5 billion ($21.6 billion) hole in the public finances by the previous Conservative government. The survey was conducted between Aug. 1 and August 15, around a month after Labour took office. 

Linda Ellett, UK head of consumer, retail and leisure for KPMG, said: “With greater inflation stability, the first cut to interest rates since 2020, and the election having provided political certainty, consumer confidence is gradually recovering.”

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