Where next for GBP as consumer confidence rises but inflation remains a challenge?

[MongiIG]

Despite UK consumer confidence rising to a 10-month high, the Gfk consumer confidence index shows that half of consumers are using savings to pay for everyday items and one in 10 are borrowing to survive.

 Jeremy Naylor | Writer, London | Publication date: Friday 24 February 2023

Consumer confidence rises

After recent signs of improvement in the UK economy, Gfk's headline Consumer Confidence Index has risen by more than expected to a 10-month high in the month of February.

The index increased to a -38 in February from a -45 the previous month. Economists had expected to give rise to a -43, now seven point increase. That's the biggest month-on-month improvement in almost two years.

But there is still a long way to go to the -7 recorded back in February 2020, just before the coronavirus pandemic hit back in 2020.

GBP/USD

If we look at what's happening at the moment with sterling, we can see there is a little bit of an uptick at the moment in sterling against the US dollar.

But the problem with this is the reason why we've seen sterling under pressure is really not recovered recently is because the cost of living crisis remains a challenge for UK consumers.

The survey out today shows that nearly half of consumers are now digging into their savings to cover essential costs and one in 10 are taking on debt to pay for essentials.

GBP/EUR

Quick update on where we are in terms of the move for sterling against the euro. Again, this downward pressure seems to be prevailing. We've got a little bit of gains for sterling at the moment against the euro, but broadly speaking, this is a trend which is a slow grind, lower for sterling against the European single currency.