Consumer confidence rises to 14-month high to add to puzzle for BoE
Consumer confidence reached its highest since January 2017 for April according to data to be published today, with economists pointing to rising real wages behind the improvement.
The headline confidence index from Yougov and the Centre for Economics and Business Research (CEBR) increased by 2.2 points to hit 109.8, above the 100 mark which indicates overall positive sentiment. The improvement was driven by a broad rise across perceptions of the health of household finances, job security, and broader business activity.
However, the data come after the first estimate of first-quarter growth by the Office for National Statistics (ONS) on Friday revealed the weakest expansion in GDP since 2012, at 0.1 per cent – GDP per capita fell during the period. The effects of bad weather during the quarter do not fully explain the slowdown, the ONS said.
Read more: Fewer Brits expect rate rise from Bank of England
The mixed picture presented by economic data present a quandary for the Bank of Englands policymakers, who signalled in February that interest rates would likely rise at the next decision from the rate-setting monetary policy committee (MPC) on 10 May.
The confidence data, generally seen as a leading indicator for growth, give “much needed hope” of a pick-up in the British economy, according to Nina Skero, CEBRs head of macroeconomics. Optimism may have been boosted by the long-awaited return to real wage growth, with pay finally overtaking inflation.
Yet the GDP figures “make it a lot harder to raise rates,” said Ian Stewart, chief economist at Deloitte. “Until last Friday the stars were pretty much aligned for a rate rise.”
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The “optics of raising rates” immediately after a notably weak quarter will be problematic, he said, while recent Eurozone growth data have also suggested the strong momentum enjoyed by the blocs major economies last year may be waning.
The fall in inflation which may have boosted consumers adds further complication for the MPC, which had predicted annual consumer price inflation of 2.9 per cent in the first quarter. Weaker outturns, which left inflation at 2.5 per cent in March, call into question the rationale for raising interest rates.
Recent comments from Bank governor Mark Carney acknowledging the “mixed data” have given “room to manoeuvre” by playing down market expectations of a rise, according to Fraser Lundie, co-head of credit at Hermes Investment Management.
“With recent data blurred by extreme weather conditions, the Bank of England is clearly keen to preserve optionality as to the timing of future interest rate hikes, whilst reaffirming their intention to normalise economic policy,” he said.
Read more: DEBATE: Should weaker inflation stop the Bank of England raising rates?
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