UK consumer confidence hits eightmonth high following BOA cut

UK consumer sentiment has reached its strongest level since October last year, according to new data released this morning, as households responded positively to the Bank of England’s recent interest rate reduction to 4%.

The S&P Global UK Consumer Sentiment Index recorded a reading of 47.0 for August, up from 45.1 in July, marking the highest reading in eight months. While the figure remains below the 50-point threshold that indicates positive sentiment, the improvement suggests families are beginning to feel more optimistic about their financial prospects.

The survey, which captures responses from more than 1,500 households, began collecting data just one day after the Bank of England announced its latest rate cut earlier this month. The central bank reduced its base interest rate from 4.25% to 4%, representing the fifth consecutive quarterly reduction and bringing borrowing costs to their lowest level in over two years.

Households reported their strongest sentiment about personal finances for 13 months, though this indicator remained in negative territory. Respondents also showed greater confidence about the labour market, with both job security and workplace activity levels improving compared to previous months.

Maryam Baluch, economist at S&P Global Market Intelligence, said the timing was significant. “August data comes hot on the heels of the recent rate cut decision made by the Bank of England earlier in the month.

Encouragingly, the data reveals a slight revival in household confidence, which is a telling sign that the easing of monetary policy has been received positively by households across the country.”

The improvement in consumer sentiment comes as the Bank of England continues to balance persistent inflation concerns with mounting worries about economic growth and the labour market. Current inflation stands at 3.6%, significantly above the Bank’s 2% target, while GDP growth slowed to 0.3% in the second quarter from 0.7% in the first quarter.

Despite the rate cut providing some relief to homeowners through reduced mortgage payments, the Bank’s governor Andrew Bailey has emphasised that future interest rate reductions will be approached with caution and executed gradually.