UK Consumer Confidence Surges Amid Warmer Weather and Easing Inflation
UK consumer and business sentiment have strengthened in June and July due to warmer weather, major sporting events, and easing inflation. Retail sales volume rose 1% in June, beating expectations of a 0.3% decline, with annual sales growth reaching 4.2%. The GfK's consumer confidence index jumped six points to minus 17 in July, the largest monthly gain since November 2023.
The S&P Global PMI rose to 52.1 from 49.3, a three-month high, indicating stronger business activity. However, economists warn that higher oil prices linked to the US-Iran conflict and new tariffs could undermine this momentum. The Bank of England is expected to hold interest rates at 3.75% amid easing inflation at 2.6% in June.
The improvement in retail sales and consumer confidence is attributed to a combination of factors, including unusually hot weather, retailer discounting, and increased demand for clothing, fans, air conditioners, and sports equipment. However, fuel sales remain weak. The underlying picture for households and employment remains mixed, with wage growth slowing and broader price pressures easing.
Economists caution that the improvement may not last if energy costs rise further and trade uncertainty deepens. The flare-up in the US-Iran war has pushed oil prices close to $100 a barrel, adding to concerns about businesses and consumers facing a tougher backdrop.