Household spending squeeze signals fall in consumer confidence

Consumer confidence eased back in February after a Brexit-fuelled jump in food and fuel prices put the squeeze on household spending. 

The closely watched GfK Consumer Confidence Index dropped by 1 point to minus 6, falling further from a reading of minus 5 in January. 

Joe Stanton, head of market dynamics at GfK, said the debt fuelled consumer spending boom in the wake of the EU referendum result now "appears to be softening". 

"Against a backdrop of rising food and fuel prices, sterling depreciation, nominal earnings growth and a burgeoning fear of rapid inflation, concern about our personal financial situation for 2017 has contributed to a drop in UK consumer confidence this month."

The major purchase index, which measures consumers' appetites for making big ticket item purchases, sunk five points to a reading of plus 5. 

It comes as rising food and fuel prices pushed inflation to a two-and-a-half-year high at 1.8% in January, while retail sales unexpectedly fell by 0.3% in the month. 

Ballooning import prices triggered by the Brexit-hit pound are a key factor behind the rise in everyday prices as companies pass their soaring costs to consumers.

The Bank of England expects inflation to lift to its 2% target in February, peaking at 2.8% in the first half of next year, before falling back to 2.4% in three years' time.

"Consumer spending continues to drive economic growth in the UK so any further fall in confidence could support forecasts for a slowdown of the overall economy this year," Mr Stanton added. 

The index also showed a deterioration in personal finances, dropping by 2 points to plus 1, four points lower than last year.

However, the measure of sentiment for the general economic situation rose by 3 points to minus 21 in February, but was still 11 points lower than last year.

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