UK consumer confidence improved in August, while retail spending intentions rose sharply, giving retailers a more positive signal on potential demand ahead of the government’s autumn Budget.
Expectations for the UK economy over the next three months improved by eight points to a net balance of -28, from -36 in July, according to the latest BRC-Opinium Consumer Sentiment Monitor.
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Expectations for personal finances also strengthened, rising to -9 from -12, while expected personal retail spending increased seven points to +8 from +1.
The figures point to stronger spending intentions even though consumers remain pessimistic about the economy and their personal finances.
The British Retail Consortium (BRC) said the improvement gives Prime Minister Andy Burnham’s government an opportunity to sustain the increase in consumer confidence. It warned, however, that pressure on household finances and retail operating costs could undermine the momentum.
Retail spending intentions strengthen
The improvement was particularly pronounced in consumers’ expectations for retail spending.
Expected personal retail spending rose to a net balance of +8 in August from +1 in July. Expectations for overall personal spending also increased, reaching +15 from +13.
Expectations for saving moved in the opposite direction, slipping slightly to -5 from -4.
Helen Dickinson, chief executive of the BRC, said consumer sentiment had continued to improve, with expectations for the economy reaching their highest level since the sharp deterioration at the start of the conflict involving Iran.
The BRC also pointed to greater optimism among Gen Z consumers, who reported improved expectations for their personal finances and higher spending intentions.
Dickinson said an expected easing of the extreme summer heat could also create more favourable conditions for shopping.
The seven-point increase in retail spending intentions points to stronger near-term willingness to spend. However, the continued negative readings for economic expectations and personal finances show that the improvement in sentiment remains uneven.
BRC presses for lower retail costs
The BRC has used the improvement in consumer sentiment to press its case for lower retail operating costs ahead of the government’s autumn Budget.
The trade body argues that policy decisions will be important in determining whether the improvement in consumer confidence can be sustained.
“The Burnham administration is enjoying a honeymoon boost driven by less pessimism about the outlook,” Dickinson said.
“Maintaining that momentum will depend on whether the Government can ease the pressure on household budgets.”
The BRC has called for measures to reduce retailers’ operating costs, including energy bills and business rates. It says retailers are already facing higher tax and regulatory costs while competing to keep down the price of food and other essential goods.
The trade body has warned that further increases in the cost of doing business could put upward pressure on consumer prices.
Inflation keeps pressure on households
The improvement in consumer confidence comes against a challenging cost-of-living backdrop.
UK consumer price inflation rose in July, with the annual CPI rate increasing from 2.6% in June. The latest figures leave inflation above the Bank of England’s 2% target.
Higher inflation and continued pessimism about personal finances mean stronger spending intentions may not translate into a sustained increase in retail sales.
That makes the government’s autumn Budget an important focus for the retail sector, with businesses looking for measures that could reduce operating costs rather than increase them.
Dickinson described the Budget as the “acid test” of the government’s commitment to economic growth.
“If the government can reduce retail business costs, from energy bills to business rates, it will be ordinary households who feel the benefit,” she said.
The BRC’s position links the improvement in consumer sentiment with its call for lower retail operating costs, particularly energy bills and business rates.
For retailers, the August figures provide a more positive signal on spending intentions, but they do not establish a sustained recovery in actual demand.
The key test will be whether stronger consumer sentiment translates into higher retail sales through the autumn, while the sector will also be watching the Budget for measures that could affect operating costs and consumer prices.
