Consumer confidence on the rise is always an interesting measure of economic health.
When confidence is trending up, consumers are spending money and this is indicative of a healthy economy.
According to the latest Lloyds Bank Spending Power Report, there has been a further boost in consumer confidence as we approach Christmas.
Attitudes towards current and future financial and employment situations are improving, with the overall Spending Power Index up by 3 points in November, to stand at 161.
With unemployment at its lowest level since 2006, and signs of improved wage growth, those surveyed by Lloyds Bank say they are feeling more optimistic about the current situation, with this index up 5 points to 210.
The increase was driven by improved sentiment towards personal financial situation (+6pp) at +31%, and household financial situation, which climbed significantly (+9pp) to an all-time high of +26%.
Commenting on the index findings, Patrick Foley, Chief Economist at Lloyds Bank, said:
“Spending power confidence rose further in November, lifted by a more upbeat assessment of current circumstances, and a greater sense of optimism around the outlook.
“With price pressures for essentials still subdued, and some improvement in wage growth becoming evident, households are continuing to feel better about their personal financial situation, particularly those who say money is tight.
“This bodes well for the UK’s solid pace of economic recovery being sustained in 2016.”
November also saw an increase in the Future Situation Index, up 2 points to stand at 112, its highest point of the year.
This was driven by a marginal increase in those who think they will have ‘more’ or ‘much more’ future disposable income in six months’ time (standing at 24%, up from 22% in October) and supported by stability towards own job security (unchanged at +57%).
There has also been a marginal increase in those planning to pay off ‘more’ or ‘much more’ debt in the next six months, now at 18%, the highest figure this year. Those planning to save ‘more’ or ‘a lot more’ over the same period continues to rise slightly, up to 24% in November, from 23% in October.
It’s worth noting that many economists view consumer confidence as a lagging indicator; this means it responds only after the economy has improved.
In simple terms, it can take some time for consumers to recover from the circumstances of a poor economy and respond to positive economic growth.
That said, this improving consumer confidence could indicate the economy is improving sufficiently well for the Bank of England to start raising interest rates in 2016.
The latest interest rate predictions from money markets suggest we might expect the first rise in December 2016 or January 2017.