British Consumer Confidence Increases the Most in 18 Years

U.K. consumer confidence jumped the most in 18 years in May as Britons became less pessimistic about their finances and the economy, a report by GfK NOP Ltd. showed.

An index of sentiment rose 10 points from April to minus 21, the highest in five months, the London-based research group said in an e-mailed report today. That’s the biggest increase since May 1993 and lifts the gauge from a level equal to that seen in the depth of the recession in February 2009.

A separate report from Nationwide Building Society showed house prices rose more than economists forecast in May. Still, both GfK and Nationwide said the reports may not be the beginning of a pickup in spending, citing the squeeze on households from accelerating inflation and concerns about the government’s budget squeeze.

“It is far too early to know whether this could be the start of an upward trend,” GfK Social Research Managing Director Nick Moon said in a statement. “We are improving from a rock-bottom position and consumer confidence is still deeply in the negative. We are not out of the woods.”

GfK’s measure of consumers’ view of their personal financial situation over the last 12 months rose 5 points to minus 18, and an index of expectations gained 11 points to minus 3. A gauge of Britons’ willingness to make major purchases rose 5 points to minus 26. The overall confidence index fell 3 points from a year ago.

GfK surveyed 2,005 Britons from May 6 to May 15. The results have a margin of error of 2 percentage points.

‘Feel-Good Factor’

A measure of sentiment on the economic outlook advanced 15 points to minus 15. GfK said the gain in confidence may be partly due to a “feel-good factor” following two consecutive four-day holiday weekends and the wedding of Prince William and Kate Middleton at the end of April.

Next Plc (NXT), the U.K.’s second-largest fashion retailer, raised its full-year profit forecast on May 4 after the warmest April on record and royal wedding celebrations boosted sales.

Still, U.K. unemployment claims rose at the fastest rate in 15 months in April, underlining the fragility of the economic recovery. Bank of England officials said this month that an interest-rate increase now could damp consumer spending.

Nationwide’s report showed the average cost of a home increased 0.3 percent to 167,208 pounds ($274,840) this month after a 0.2 percent drop in April.

“While the outlook remains uncertain, sideways still appears the most likely trajectory for house prices over the remainder of the year,” Nationwide Chief Economist Robert Gardner said. The deterioration in consumer spending “argues against a strong bounce in property prices.”

To contact the reporter on this story: Scott Hamilton in London at shamilton8@bloomberg.net

To contact the editor responsible for this story: Craig Stirling at cstirling1@bloomberg.net

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