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GfK consumer morale hits 9-year high as growth broadens
May 30, 2014 / 8:12 AM / 4 years ago

GfK consumer morale hits 9-year high as growth broadens

LONDON (Reuters) - British consumer sentiment hit its highest level in more than nine years this month, adding to signs that the economy is strengthening and raising questions about how much longer the Bank of England will keep interest rates on hold.

A pedestrian talks on the phone as she walks along King Street, the main shopping street in Kilmarnock, Scotland March 24, 2014. REUTERS/Suzanne Plunkett

The picture of a strengthening recovery was bolstered by other releases on Friday which also showed growing confidence among consumers and growth spreading through the economy.

Polling company GfK said its monthly consumer confidence index rose to zero in May from -3 in April. This was its highest level since April 2005 and beat economists’ forecasts in a Reuters poll for an increase to -2.

Britain’s economy has rebounded rapidly over the past year, which GfK said had boosted morale even though sluggish wage growth meant most households’ financial situation had not improved that much.

“The real driver of the increase is people’s assessment of the general economic climate ... people’s verdicts on their own circumstances were less positive,” said Nick Moon, GfK’s managing director of social research.

A similar survey by polling company YouGov for the economics consultancy CEBR, which was also released on Friday, showed the most positive consumer sentiment since July 2007.

The BoE now expects the economy to expand by 3.4 percent this year - its fastest pace since 2007 - and on Friday the British Chambers of Commerce (BCC) upgraded its own growth forecast to 3.1 percent this year from an earlier 2.8 percent.

Separately, the Confederation of British Industry said that its growth indicator - which is based on surveys of factories, retailers and services companies - was its strongest since the series began in 2003.

“What’s encouraging is that growth is becoming more broad-based,” said CBI deputy director-general Katja Hall.

But BoE interest rates remain at the record-low 0.5 percent set in the depths of the financial crisis, and Governor Mark Carney said earlier this month that he wants the economy to recover more lost ground before raising rates.

BoE forecasts suggested a rate rise in around a year would be consistent with keeping inflation under control.

On Wednesday, Monetary Policy Committee member Martin Weale said rates might need to rise sooner rather than later. [ID:nL6N0OE5CL]

The BCC on Friday brought forward its forecast of when it expected interest rates to rise to the first three months of 2015, six months earlier than before, and said it wanted more clarity from the central bank over the pace of rate rises.

“The MPC’s efforts ... are being hampered ... by apparent inconsistencies between Governor Carney’s reassuring comments and the MPC’s minutes,” said BCC chief economist David Kern.

The BoE said last week that some of its members felt that the case to raise interest rates was strengthening.

“The strong rise in sterling over the past year, which makes our exports more expensive, is an important reason for not raising rates prematurely,” Kern added.

Carney has previously said any rate rise would be gradual, and BoE Deputy Governor Charlie Bean said on Thursday that there was a case to only move rates in “baby steps” when the time came, to reduce the risk of a mistake. [ID:nL9N0MF01C]

But Weale said that if rates were only to move in “baby steps”, they would need to start rising sooner than otherwise, and that a gradual tightening in policy could be as fast as 1 percentage point a year.

* GfK’s survey was conducted on behalf of the European Commission between May 2 and May 18. For a detailed table of the results, see [ID:nL6N0OF266]

Editing by William Schomberg and Toby Chopra

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