UK consumer confidence hit its highest level this year in August, despite “clouds on the horizon”, in terms of growing unemployment and inflation.

The GfK’s consumer confidence index rose by two points to -17 over the month, boosted by improved personal finances, likely due to the recent reduction to interest rates.

The Bank of England voted to reduce its base interest rate from 4.25% to 4% earlier in August.

Confidence in personal finances over the coming year and previous 12 months increased by three points to +5 and -4 respectively.

In addition, the market research firm’s measure for the general economic situation of the country over the past year climbed by two points to -42, making it seven points below the year prior. 

Expectations for the upcoming year dropped one point to -30, making it 15 points below the same time last year.

However, the major purchase index jumped two points to -13.

GfK consumer insights director Neil Bellamy said: “The biggest changes in August are in confidence in personal finances, with the scores looking back and ahead a year each up by three points.

“This is likely due to the Bank of England’s August 7 cut in interest rates, delivering the lowest cost of borrowing for more than two years.”

He continued: “The improved sentiment on personal finances is welcome, but there are many clouds on the horizon in the form of inflation – the highest since January 2024 – and rising unemployment.

“There’s no shortage of speculation, too, about what the autumn budget will bring in terms of tax rises.

“While August’s overall index score of minus 17 is the best this year, consumer confidence continues to move in a very narrow band, and there’s no sense that it is about to break out into fresher, more optimistic territory.”

This week, the British Retail Consortium (BRC) reported consumer confidence was still in the “doldrums,” despite it rising slightly in August. 

According to the BRC-Opinium Consumer Sentiment Monitor, confidence in the state of the economy increased to -32 in August, from -33 the month prior. 

In July, the BRC also reported that inflation shook consumer confidence over the month, as the UK economy shrunk for the second consecutive month.

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