U.K. consumer confidence improved more than expected in February, a sign of strength even as households continue to feel the pinch from high inflation and climbing interest rates.
Research firm GfK said its consumer-confidence barometer rose to minus 38 in February from minus 45 in January, the highest reading since April and more than reversing a dip last month.
The reading, the largest monthly rise in sentiment since March 2021, beat economists’ expectations of a smaller improvement in sentiment to minus 43.
However, the confidence level is still severely depressed and the mood remains a long way off the levels before coronavirus-related lockdown measures, GfK client strategy director Joe Staton said.
“Many challenges remain and this may be nothing more than a bubble of hope–and bubbles always burst,” he said.
The rise in confidence was mainly driven by an improved assessment of personal financial situation and in the state of the economy over the next 12 months, according to GfK.
U.K. inflation eased to 10.1% in January from 10.5% in December, its third fall in as many months, as fuel prices moderated, suggesting price pressures are abating.
The Bank of England, which raised interest rates to 4.0% in early February, has also signaled that it might soon pause its rate-hike cycle amid signs that economic expansion is softening.