UK retail spending rises as ‘feel-better factor’ returns

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UK consumers are increasing their spending in the shops as they become more confident about personal finances, according to a survey.

A consumer confidence barometer published by GfK market research jumped five points in January to its highest level since the summer, as the monthly survey by the CBI business group showed that retail volumes grew at a faster pace than expected.

While sales increased at a slower pace than the previous month, which had benefited from a bumper “Black Friday” boost, volumes were well above average for the time of year.

The data will ease fears that consumers had merely brought forward spending to take advantage of heavy discounting and that sales would slump in the early months of this year.

Michael Saunders, an economist at Citi, said the data provided further evidence that wage growth and lower inflation were driving a pick-up in household real incomes, adding: “The feel-better factor is back.”

The GfK survey saw consumers report higher levels of confidence in all of the component areas, which range from expectations of their own financial situation to the general economic outlook.

Nick Moon, managing director of social research at GfK, said that while the “big jump” would be welcome news, people should not “get too carried away” as the rise was only returning the index to the upper edge of the range in which it had remained for eight months.

A prolonged increase in consumer confidence would be expected to boost the chances of the Conservatives in the run-up to May’s general election.

“If next month sees another rise, that will definitely signal good news for the government,” said Mr Moon.

Rain Newton-Smith, the CBI’s economics director, said retailers saw solid footfall during the Christmas trading period, even if some were feeling pressure on margins due to strong competition.

“Falling oil prices and low inflation mean consumers have a bit more money in their pockets,” she said. “We expect to see this translate into strong sales growth in the months ahead.”

About 50 per cent of retailers said sales were up in January compared with a year ago, with 10 per cent saying they were down, leaving an above-expectations balance of 39 per cent.

Retailers are also confident about the future, with a balance of 42 per cent expecting sales volumes to increase.

Maeve Johnston, UK economist at Capital Economics consultancy, said strong figures showed “consumers are spending the windfall from lower oil prices and higher earnings”.