UK Consumer Confidence Hits Two-Year High But The Honeymoon Might Be Short

UK consumer confidence rose unexpectedly in August, climbing three points to –14 on the GfK index. That is the strongest reading since August 2024 and runs counter to economists’ expectations of a further decline.

The improvement was driven by brighter views of the economy over the next 12 months and greater willingness to make major purchases. Good weather and a continued “Burnham bounce” following the arrival of the new prime minister helped sustain the lift that began in July. A parallel British Retail Consortium survey also showed expectations recovering, particularly among younger adults.

The recovery is uneven. Consumers aged 30–49 recorded a sharp 10-point rise, while 16–29-year-olds remain the only age group in positive territory. Younger households generally have more flexible spending power; older cohorts are more exposed to inflation through fixed incomes such as pensions and tend to react more strongly to geopolitical headlines.

Inflation itself has started to edge higher again, reaching 2.9% in July. Combined with ongoing uncertainty in the Middle East, this suggests the recent improvement in sentiment could prove fragile. As GfK noted, political honeymoon periods are often brief.

For the broader economy the near-term implication is modestly supportive for retail and discretionary spending, at least while the weather and political novelty last. The real test comes with the Budget. Whether the government can ease pressure on household budgets will determine if this rebound in confidence develops into sustained demand growth or fades as quickly as previous post-election lifts.