According to a recent report by the Financial Times, UK consumer confidence improved in May 2025, even as inflation surged to its highest level in over a year
Consumer Sentiment Shows Modest Improvement
The GfK Consumer Confidence Index rose by three points to -20 in May, indicating a slight uptick in consumer optimism. This improvement brings the index back to its February level but remains significantly below the pre-pandemic average of -5.6. The rise was driven by improved perceptions of personal finances and the broader economic outlook.
Neil Bellamy, consumer insights director at GfK, suggested that the Bank of England’s recent quarter-point interest rate cut and the easing of trade tensions following new deals with the US and India may have contributed to this positive shift. However, he cautioned that concerns about inflation persist.
Contrasting the improved consumer sentiment, UK inflation jumped to 3.5% in April, up from 2.6% in March. This increase, driven by higher household bills and transportation costs, marks the highest inflation rate since January 2024. The unexpected rise has led traders to adjust their expectations regarding future interest rate cuts by the Bank of England.
Mixed Signals for the Economy
While consumer confidence has shown signs of recovery, the surge in inflation presents challenges for the UK economy. Household consumption, which accounts for about 60% of UK GDP, contributed little to first-quarter growth despite the economy expanding by 0.7%. The increased cost of living may continue to suppress consumer spending in the near term.
Despite inflationary pressures, the retail sector has seen positive developments. According to the British Retail Consortium, total retail sales increased by 7% year-on-year in April. This growth was attributed to favorable weather conditions and a late Easter, which boosted consumer footfall.
Outlook Remains Uncertain
While the recent improvements in consumer confidence and retail sales are encouraging, the persistent rise in inflation poses risks to sustained economic recovery. The Bank of England faces the challenge of balancing interest rate decisions to manage inflation without stifling growth. Consumers may remain cautious in their spending until there is greater clarity on the economic trajectory.
