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Economy in Brief

U.K. GfK Consumer Confidence Declines to a Low Level
by Robert Brusca  February 25, 2022

The U.K. GfK confidence index fell to -26 in February from -19 in January. The month-to-month drop is quite large and has been greater in the last 20 years only about 2% of the time. The -26 index for February leaves the GfK reading in the bottom 30% of its range over the last two years. The confidence reading also resides in the bottom 20% of its queue of readings over the last 20 years.

This month one of the things driving the index low is a concern on the part of the U.K. consumer about inflation. Inflation concerns are at the top of the range for two years as well as over 20 years. U.K. consumers are concerned both about inflation over the last 12 months as well as inflation over the next 12 months. The inflation performance has been poor and the outlook for inflation is also poor and quite disconcerting to survey respondents.

The current situation
Household's current financial situation declined to 22 in February from 26 in January. The current household financial situation is in the bottom 9% of its range over the last two years, marking it as a very weak reading. However, viewed more broadly over the last 20 years, its queue standing is in the 58th percentile placing it comfortably above its historic median for that period.

The last 12 months
For the last 12 months, the household financial situation deteriorated to -11 in February from -6 in January. The general economic situation deteriorated to a reading of -50 from -47 and the inflation rating moved up to 105 from 99, indicating concern about inflation. If we look at these readings as a percentile of their two-year range, the household financial situation is in its bottom 27%, the general economic situation is in its bottom 38%, and the CPI is the highest it's been over the last two years. If we look at these rankings over the last 20 years in terms of the queue standing, the household financial situation still ranks very weak in its bottom 31st percentile. The general economic situation is still very weak in its bottom 26th percentile standing. The CPI also is still a very big concern, standing in its 97th percentile over the last 20 years.

12 months ahead
Looking to concerns over the next 12 months, the household financial situation assessment declined to -14 in February from -2 in January. The general economic situation declined to -43 from -32. Unemployment concerns elevated only slightly to 24 from 23. The environment for saving has deteriorated to 15 from 25. Concerns about inflation are elevated even more sharply to a level of 116 in February from 104 in January. These rankings show the household financial situation at its worst in the last two years. The general economic situation is in its bottom 21%. Unemployment is in its lower 18 percentile – where a low reading is a good result, because it means that while there are a lot of concerns on the part of consumers, being unemployed is not high on the list. However, the environment for savings is weak, the weakest it's been over 2 years. We can also look at how these are positioned over the last 20 years. The household financial situation outlook has been worse in the last 20 years only 1.7% of the time; the general economic situation outlook has been considered worse only 4.2% of the time- both are extremely weak readings. The unemployment situation is more middle of the road at the 47th percentile, leaving it near its historic median. Savings are at their 57th percentile, a mid-range reading that's above its median. Concerns about the outlook for inflation are at their all-time high over the last 20 years.

Income groups
A final reading looks at confidence by income group; both high and low income groups have low confidence standings, but lower income respondents show the weakest standings as inflation has risen.

Summing up
On balance, the consumer survey for the U.K. conducted by GfK is weak. One of the main driving factors we see is concern about inflation. For now, inflation doesn't seem to be creating a concern about unemployment. But there's going to be concern about the invasion of Ukraine. It's unclear how Europe is going to react and how the U.K. is going to react to this new development. But very clearly this is a new negative development for confidence and for growth. It will bring a heightened sense of risk for Europe and certainly it's going to mean higher military expenditures, more concerns about security, and higher oil prices. That's going to feed into already-elevated concerns about inflation.

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