Consumer morale hits nine-year high as growth broadens

Bank of England Governor Mark Carney
Bank of England Governor Mark Carney
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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.

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.

The 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 per cent this year - its fastest pace since 2007 - and on Friday the British Chambers of Commerce (BCC) upgraded its own growth forecast to 3.1 per cent this year from an earlier 2.8 per cent.

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.

He 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.