U.K. Consumer Confidence Increased in January, Nationwide Says

By Jennifer Ryan and Svenja O’Donnell

Feb. 3 (Bloomberg) -- U.K. consumer confidence rose in January as the economy emerged from its worst recession on record, Nationwide Building Society said.

The index of sentiment increased 3 points from the previous month to 73, the customer-owned lender said in an e-mailed statement today. The result is almost double the level of 39 measured in the same month last year.

Britain returned to economic growth in the fourth quarter as house prices increased and unemployment began to decline, establishing a recovery in time for the election due by June this year. The Bank of England tomorrow will probably pause emergency bond purchases after spending 200 billion pounds ($320 billion) so far as it gauges the strength of the pickup.

“Positive signs from the manufacturing sector and labor market may have helped boost confidence during January,” Martin Gahbauer, chief economist at Nationwide, said in the statement. “Confidence is likely to remain fragile for some months.”

The measure of consumers’ assessment of their present situation rose 3 points to 23, and an index of future expectations climbed 5 points to 107, Nationwide said.

Tesco Plc, Britain’s largest retailer, reported the strongest sales growth in three years on Jan. 12. Finance Director Laurie McIlwee said an increase in non-food sales and “upmarket” ranges are “good signs of increasing confidence.”

Spending Confidence

Gains in sentiment measures outweighed a decline in the gauge of spending confidence, which Nationwide attributed to the expiry of stimulus measures including a cut in value-added tax.

“The removal of these initiatives may now be causing consumers to reconsider parting with their cash at a time of year when we would normally expect to see high levels of spending confidence,” Gahbauer said.

With the economy shaking off the recession and expanding by 0.1 percent in the fourth quarter, Prime Minister Gordon Brown has gained support in opinion polls. The Conservatives’ lead over his ruling Labour Party narrowed to 7 percentage points in a ComRes Ltd. survey in the Independent newspaper yesterday.

The U.K. economy will still grow less than originally forecast this year, the National Institute of Economic and Social Research said in a separate report today. It forecast expansion of 1.1 percent, compared with the 1.3 percent rate predicted in October. The institute’s clients include the Bank of England and the Treasury.

Niesr forecast that unemployment will continue to increase, reaching a peak of 2.9 million in 2011. A separate report today by KPMG and the Recruitment and Employment Federation showed that a measure of hiring for permanent jobs grew at a slower pace in January from the previous month, falling to 60.5 from 62.8. A reading above 50 indicates an increase in hiring.

Aside from unemployment, consumers are also battling headwinds such as accelerating inflation. Prices of goods in U.K. shops advanced 2.3 percent in January from a year earlier after a 2.2 percent gain the previous month, the British Retail Consortium said in a separate report today. Food prices rose an annual 2.9 percent while non-food prices gained 1.9 percent.

To contact the reporters on this story: Jennifer Ryan in London at Jryan13@bloomberg.net; Svenja O’Donnell in London at sodonnell@bloomberg.net.