(Updates with pound in fifth paragraph, comment from economist in eighth.)
Jan. 31 (Bloomberg) -- U.K. consumer confidence rose to the highest in seven months in January as slowing inflation eased pressure on shoppers, GfK NOP Ltd. said.
An index of sentiment rose 4 points from December to minus 29, the strongest reading since June, the London-based research group said in an e-mailed report today. Consumers’ outlook for the economy and their personal finances also improved.
Inflation slowed to 4.2 percent in December, and all of the U.K.’s six biggest energy companies are trimming prices in response to a drop in wholesale costs. Bank of England Governor Mervyn King said last week consumer-price gains will slow “sharply” this year and that policy makers have scope to increase bond purchases as the sovereign debt crisis in Europe threatens to tip the U.K. into another recession.
“A few rays of light have started to reach long-suffering consumers, including falling inflation and the recent reduction in energy prices,” Nick Moon, GfK Social Research managing director, said in a statement. “Consumer confidence is still seriously depressed and we should treat this month’s modest improvement with caution.”
The pound rose 0.2 percent against the dollar and was trading at $1.5735 as of 8 a.m. in London.
GfK surveyed 2,000 people from Jan. 6-15, before data was published showing the economy shrank 0.2 percent in the fourth quarter, its first contraction in a year. The data have a margin of error of plus or minus 2 points.
GfK said the increase in January “may simply reflect a hangover from the Christmas feelgood factor.”
“Risks of a double-dip recession, and our expectation that the deterioration in the labor market has not bottomed yet, make it unlikely that consumer confidence will continue improving significantly from here,” said Blerina Uruci, an economist at Barclays Capital in London.
Inflation has slipped from a peak of 5.2 percent in September. A measure of Britons’ assessment of their personal financial situation over the past 12 months rose 1 point to minus 22, and the gauge for the coming year increased the same amount to minus 9. A gauge assessing the economic outlook rose 8 points to minus 33, while shoppers’ assessment of the climate for making major purchases rose 9 points to minus 22.
--Editors: Fergal O’Brien, Simone Meier
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