UK Consumer Confidence Hits Two-Year High But It Might Be Short-lived

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 GfK is a monthly economic indicator that measures consumer sentiment, reflecting how optimistic or pessimistic they feel about the economy.

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 British Retail Consortium survey also showed expectations recovering, particularly among younger adults.

The recovery was varied as consumers aged 30–49 recorded a sharp 10-point rise, while 16–29-year-olds confidence declined three points but still remained the only age group in positive numbers. Younger households generally have more flexible spending power while older cohorts are more exposed to inflation through fixed incomes such as pensions and tend to react more strongly to poltical and economic headlines which often justifies disparities in confidence.

Inflation itself has started to increase again, reaching 2.9% in July from 2.6% the month before. Combined with ongoing uncertainty in the Middle East and the Iran war, this suggests the recent improvement in sentiment could prove fragile.

For the broader economy the short-run implication is supportive for discretionary spending, at least while consumer confidence and political tolerance remains high. However, the issue comes with the Budget and whether the government can ease pressure on household budgets which will determine if this rebound in confidence develops into sustained demand growth or fades as quickly as a post election illusion.