Renewed consumer confidence is more than a one-day wonder | Analysis

Browsing at the Westfield shopping centre in east London. Consumer confidence is finally on the mend, according to a GfK survey. Photograph: Kumar Sriskandan/Alamy

Consumer confidence is on the mend. That's the clear message from the monthly snapshot of the UK provided by GfK, which found that sentiment is back to the level attained in April 2010, a period in which the economy posted its fastest quarterly growth since the start of the recession in 2008.

On the evidence from GfK, this is more than a one-day wonder. Consumer confidence has a tendency to bounce around, but the index has risen by 11 points in the past three months and has been on a clear upward trend since the end of 2012. The 12-month moving average started the year at -29  and now stands at -25.

While this hardly suggests that consumers are jumping for joy it does indicate that the mood is less gloomy than it was this time last year.

Good weather could have something to do with this, but this would only explain the five-point improvement in July, not the pick up in earlier months when it was cold and wet. The compensation payments for mis-sold protection payment insurance have also helped boost consumer incomes, but were probably more important in 2012 than 2013.

So what is going on? The past few months have seen the confluence of three separate trends, all positive for consumer confidence. First, the labour market has improved. There are more jobs available, and anyone who has survived this long without being made redundant is now probably breathing a sigh of relief.

Second, the Bank of England has indicated that low interest rates are here to stay. There is no chance of the cost of borrowing rising until 2015 at the earliest; this may well have released some of the spending pent up over the years of hunkering down.

Finally, inflation has come down from its peaks; not by enough to provide workers with increases in real wages but by enough to take a bit of pressure off household budgets.

Only when incomes start to rise faster than prices will consumers finally get their mojo back. But the data now suggest solid growth in the economy in the second half of 2013.

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