Bloomberg News

U.K. Consumer Confidence Climbs the Most in 5 1/2 Years in May

June 14, 2011

June 15 (Bloomberg) -- U.K. consumer confidence jumped the most in 5 1/2 years in May as Britons became less pessimistic about spending and the extra public holiday for the royal wedding led to a “feel-good factor,” Nationwide Building Society said.

An index of sentiment gained 11 points from April to 55, the highest in five months, the customer-owned lender said in an e-mailed report today. That’s the biggest monthly increase since November 2005 and lifts the gauge from a level equal to that seen in the depths of the recession in March 2009.

“It is too early to say whether consumer confidence is in a sustained recovery,” said Robert Gardner, chief economist at Swindon, England-based Nationwide. “There are still strong downward pressures, not least higher-than-hoped for inflation and continued concern around employment, whilst recent announcements of large domestic energy price hikes are likely to dampen consumer mood.”

U.K. inflation is outpacing wage growth, squeezing consumers whose confidence is being undermined by concerns about the government’s budget cuts. Annual price growth held at 4.5 percent in May, while a report today may show that wage growth averaged 2.1 percent in the three months through April.

A gauge of whether Britons’ think now is a good time to buy household goods or major purchases such as a car or a home rose 16 points to 79 in May. An index of expectations for the economy in six months’ time advanced 17 points to 76. Both measures were at their highest level since December.

Economic Outlook

The percentage of the 1,000 people questioned who said they expect the economy will be worse in six months’ time decreased 13 percentage points to 26 percent last month. The proportion who said this is a good time to make a major purchase rose to 27 percent from 20 percent in April.

Still, Nationwide said “underlying” sentiment remains “cautious,” pointing to the index measuring consumers’ view of the current situation. It rose 3 points to 23, the same level as in May 2010. Iberdrola SA’s Scottish Power unit has said it will raise gas and electricity prices from August.

The Bank of England held its key interest rate at a record low last week. In May, the majority of the bank’s policy makers said a rate increase now could undermine consumer confidence.

“We would need to see consumer confidence continue to rise over the coming months for us to be able to say that the economic recovery is truly being felt by the British public,” Gardner said.

Nationwide’s survey also showed that Britons became less pessimistic about the housing market last month. They expect the value of their home to fall by 0.2 percent over the next six months, compared with a prediction of 1.1 percent in April.

In a separate report, the Building Societies Association in London said the share of Britons who think now is not a good time to buy a home fell in June to 21 percent from 29 percent in March. The share who said it is a good time to buy was unchanged at 41 percent, the association said, citing a poll by YouGov Plc, which questioned 2,023 adults between June 3 and June 6.

The Nationwide survey was carried out between April 25 and May 22.

--Editors: Fergal O’Brien, Andrew Atkinson

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net


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