Consumers are more upbeat about their finances and the state of the economy this month after a de-escalation in global trade wars.
A monthly survey of household sentiment, compiled by GfK, the market research company, gained three points in May, partially reversing the drop reported last month at the height of uncertainty about US tariff policy.
The index hit minus 20 — a two-month high — and all five sub-components of the survey, which spoke to more than 2,000 households, rose this month. Consumers reported the biggest improvement in their personal financial situation over the next 12 months, with the index gaining five points into positive territory of two. There were also gains in sentiment about the prospects for the economy over the next year.
• UK inflation jumps to 3.5%, led by rise in household bills
Consumers also returned to making major purchases on furniture and household goods this month, with the measure rising by three points to the highest since 2024. This suggests that April’s spike in inflation has not done major damage to household spending power.
Regulated prices for energy, water, and car tax bills all rose strongly last month, pushing the annual consumer inflation rate from 2.6 per cent to 3.5 per cent. Sentiment may have also been helped along by another interest rate cut from the Bank of England this month, pushing the base rate down to 4.5 per cent.
Neil Bellamy, consumer insights director at GfK, said inflation fears “have not disappeared but the consumer mood in the UK does appear to have improved a little”.
Consumer and business sentiment surveys have improved this month after confidence fell sharply in April, reflecting the introduction of higher payroll taxes and financial market volatility that accompanied the US president Donald Trump’s tariffs announcement on April 2.
• UK economy expands at fastest pace in a year
Sentiment surveys are closely watched by economists as an early indicator of potential economic growth. GfK’s survey peaked in the aftermath of the general election last August but the poll has been more volatile since the start of the year.
The figures comes as measures of activity in the private sector contracted in May. The manufacturing sector suffered another sharp decline in output; the Confederation of British Industry’s measure of output in the sector declined at the fastest three-month rate since the pandemic.
Ben Jones, lead economist at the CBI, said industrial firms were battling “high energy costs, rising labour costs and the threat of extra regulation with the Employment Rights Bill coming down the track”.
“While the government has taken steps to boost UK competitiveness on the global stage by striking trade deals with India, the US, and a UK-EU reset, more action is needed to shift the dial. Government must avoid further burdening business while simultaneously building confidence through the launch of an innovative industrial strategy,” he said.