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Consumer confidence rises as global trade tensions ease, despite inflation spike

by May 23, 2025
May 23, 2025
Consumer confidence rises as global trade tensions ease, despite inflation spike

British consumer confidence has bounced back this month, according to the latest GfK survey, as fears of a global trade war subside and optimism about personal finances improves — despite a spike in inflation linked to rising household bills.

The consumer sentiment index rose by three points to -20 in May, its highest level in two months, partially reversing April’s sharp decline triggered by escalating global tariff tensions and financial market volatility. GfK reported that all five measures of consumer sentiment improved, with the largest gain in expectations for personal finances over the next year, which jumped five points into positive territory at +2.

More than 2,000 households were surveyed for the monthly report. Respondents also expressed increased confidence in the broader economic outlook over the next 12 months, and the index tracking major purchases, such as household appliances and furniture, rose by three points to its highest since 2024 — suggesting that consumer spending remains resilient.

“Inflation fears have not disappeared,” said Neil Bellamy, consumer insights director at GfK. “But the consumer mood in the UK does appear to have improved a little.”

The uplift in confidence comes in the wake of a de-escalation in trade tensions between the US and China. An earlier announcement of new US tariffs in April by President Donald Trump had spooked global markets and dented consumer and business confidence. But a subsequent temporary suspension of tariffs and a broader reset in global trade relations appears to have calmed nerves.

The Bank of England’s decision to cut interest rates again this month, lowering the base rate to 4.5%, may have further buoyed consumer sentiment, even as inflation ticked higher.

In April, regulated prices for energy, water and car tax rose sharply, contributing to an increase in the annual consumer price index from 2.6% to 3.5%. While inflation is still above the Bank of England’s 2% target, the data suggests it has not yet significantly curtailed consumer spending behaviour.

The recovery in consumer confidence contrasts with weaker data from the business sector, where some industries continue to struggle. According to the Confederation of British Industry (CBI), output in the manufacturing sector fell at its fastest three-month pace since the pandemic.

“Industrial firms are facing a difficult landscape, with high energy prices, rising labour costs and looming regulation via the Employment Rights Bill,” said Ben Jones, lead economist at the CBI.

While the government has taken steps to shore up confidence through trade agreements with India, the US, and the recent UK-EU reset, Jones warned that more is needed to support business investment and productivity.

“Government must avoid further burdening business while simultaneously building confidence through the launch of an innovative industrial strategy,” he added.

Sentiment indicators like GfK’s consumer index are closely tracked by economists as early indicators of future economic performance. The index had peaked last August following the general election, but volatility has returned in recent months due to policy uncertainty and international developments.

With consumer spending accounting for a substantial share of UK GDP, a sustained recovery in sentiment could provide a much-needed boost to growth as the government prepares for the next fiscal cycle.

For now, the mood among households appears cautiously optimistic — buoyed by lower interest rates, receding trade tensions, and the hope that inflationary pressures may begin to ease in the second half of the year.

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Consumer confidence rises as global trade tensions ease, despite inflation spike

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