Consumer confidence improves in January but difficult 2017 ahead for shoppers

Consumer confidence ticked up in January, but a combination of Brexit jitters and the collapse in the value of the pound are set to take their toll on shoppers in the year ahead.

The closely watched GfK Consumer Confidence Index showed a reading of minus five for the month, a slight improvement on December's minus seven.

Joe Staton, head of market dynamics at GfK, said: "Despite strong GDP and record FTSE highs, the combination of Brexit jitters, Blue Monday, and a wobbly pound pushing up prices contributed to keeping UK consumer confidence negative at minus five this month."

The data also showed a dip in the major purchase index, from 12 to 10, signalling a squeeze in purchasing power for big ticket items.

Inflation rose to a two-and-a-half year high of 1.6% in December, and is expected to rise further over 2017 as the cost of imports soar off the back of the dilapidated pound.

The majority of Britain's retailers have so far dodged the impacts of the currency's collapse through hedging practices that include buying dollars in advance.

But they may be forced to raise prices as those positions expire.

The pound is trading around 16% lower against the US dollar versus its pre-referendum peak, and approximately 10% lower against the euro.

Mr Staton added: "Is the decline in the major purchase index this month a foretaste of slowing consumer spending throughout 2017?

"Rising inflation and weak income growth is forecast to squeeze households' disposable income, and these two factors could conspire to depress confidence for the year ahead.

"It's certainly difficult to see where the oomph will come from over the short term."

While consumers are feeling upbeat about their personal financial situation for the coming year - with the index showing a four-point increase to plus seven - concerns about the wider economy are dragging on the overall outlook.

The measure of sentiment for the general economic situation during the past 12 months rose two points to minus 24, but was still 21 points lower than this time last year.

Looking at the year ahead, sentiment remained at minus 23 for January compared to minus five in January 2016.