Consumer confidence surveys are seen as key indicators into the overall health of an economy. In periods when consumers feel confident about the stability of their incomes, it can influence their spending and saving activities. These surveys reflect the overall optimism/pessimism that consumers have about their personal financial situations and the wider economic conditions. The UK Consumer Confidence Barometer is conducted by GfK and plays a vital role in understanding economic trends.
GfK’s UK Consumer Confidence Index has been operating since 1974 and is the leading indicator of shopper sentiment. The monthly survey is conducted with a representative sample of around 2,000 UK consumers aged 16+. To ensure the final sample is representative of the population, quotas are imposed on age, sex, region, and social class. The questions on the survey are based on their personal economic situation, the general economic situation of the UK, and whether they feel it is appropriate to make large purchases or save their money. Consumer confidence in the UK has been tested over the past few years following the events such as Brexit and the coronavirus crisis.
When the figure is above zero it will indicate optimism and below indicates pessimism. A rising trend is often correlated with stronger consumption expenditure boosting GDP. A reading that is stronger than expected is generally supportive (bullish) for the GBP, while a weaker than forecast reading is generally negative (bearish) for the GBP.
Lately, the GfK Consumer Confidence indicator in the UK rose to -27 in May 2023 from -30 in April, improving for the fourth consecutive month. Despite the negative figure, households are becoming slightly more optimistic about the economy and their finances. The figure in May was also the highest in 15 months, even with persistent inflation. Though the index remained below its long-term average, suggesting that a clear majority of respondents continued to report low confidence, in line with data pointing to falling UK retail sales.
There are several ways this indicator can provide us useful insights.
Consumer spending is an essential driver of economic growth, and the GfK Consumer Confidence Indicator provides insights into future spending patterns. It can indicate shifts in market trends and consumer behavior. This information can be crucial for businesses to adjust their strategies, develop targeted marketing campaigns, and make informed decisions regarding production, inventory, and pricing. When confidence is high, people are more likely to make more purchases, driving economic growth. The spending would in turn stimulate business activity, job creation, and overall economic vitality.
Signal of Economic Health:
The index can also work as an indicator of the overall health of the economy. The indication of consumer optimism can suggest that the economy is on a positive trajectory. Otherwise with a falling index, potentially signals an economic downturn.
Policy and Investment implications:
By monitoring the index, more informed decisions can be made about fiscal and monetary policies among investors, economists, and policymakers. For instance, governments may use this data to assess the effectiveness of their economic policies and implement measures to boost consumer sentiment if required. Businesses and policymakers can gain insights into changing preferences, demand patterns, and potential risks.
Used alongside other factors, the monthly monitoring of consumers’ views of their finances and the economy now and for the next 12 months makes predicting and planning more defined by putting the results in context and comparing current and emerging trends with those of the past.