Confidence among UK consumers has improved in August as shoppers embrace record low interest rates and hold off saving, according to a new study.
The market research firm GfK said the customer confidence gauge has slightly recovered this month, rising five points to -7 after having collapsed by 11 points following the Brexit vote to -12 in July.
However, the figures continue to remain below pre-Brexit vote levels.
GfK said the general economic situation of the country during the last 12 months has increased two points to -23 in August, but this is 26 points lower than the same period last year.
Joe Staton, head of market dynamics at GfK, said: "We're reporting some recovery in the Index this month as consumers settle into the new wait-and-see reality of a post-Brexit, pre-exit UK. The uptick in confidence is driven by good news from hard data, the combination of historic low interest rates matched with falling prices and high levels of employment.
“This can be seen in positive growth across all major measures including both our Personal and General Economic situation for the next 12-months. And at +7 points (a jump of nine points from last month), the Major Purchase Index reflects strong retail figures”.
Although there have been some indications that consumers are holding off on larger financial purchases, such as mortgage approvals falling to their lowest levels in July, the study suggested this might not be the case as the major purchase index increased nine points to +7.
The figures confirmed consumer spending on smaller purchases as the savings index is 16 points lower this month at -15, from just -2 in July.
Mr Staton added: “We Brits are clearly determined to carry on shopping for today rather than saving for tomorrow."
Some economists have argued that the minor recovery demonstrated in the results is unlikely to last.
Samuel Tombs, UK chief economist, Pantheon Macroeconomics, said: “The only partial recovery of GfK’s composite index in August shows that consumer sentiment has been dealt a lasting blow by the E.U. referendum.
“The composite index remains much lower than its average of zero in the first six months of 2016 and the increase in the index also appears to partly reflect seasonal factors, but GfK’s measure is not seasonally adjusted”.
GfK forecast the general economic situation to rise 11 points over the next twelve months, to -22 from -33 in July, whilst personal finances are forecast to rise five points to +4 from -1.
Mr Tombs added: “The looming income squeeze, as inflation picks up and job growth moderates, is likely to weigh on consumer sentiment over the next six months and lead to a sharp slowdown in household spending growth.
“Despite its improvement in August, the decline in the composite index over the last year is consistent on past form with year-over-year growth in real consumer spending easing by about 3 percentage points, from Q2’s 3% rate.
“The relationship between consumer confidence and spending has slackened over the last few years, though, suggesting we should not place too much weight on specific numbers”.
