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UK consumer confidence has reversed the gains of the past two months amid rising unemployment, raising questions about whether a recent improvement in economic indicators will continue.

The GfK consumer confidence index — a measure of how people view their personal finances and broader economic prospects — dropped by 3 points in February to minus 19, the research group said on Friday. Economists polled by Reuters had expected the indicator to climb for the third month in a row to a one-and-a-half-year high of minus 15.

The fall in consumer confidence, which is closely monitored as an indication of future consumer spending, contrasts with other indicators pointing to improvements in the UK economy at the start of the year.  

In February, the S&P Global purchasing managers’ index signalled the fastest rate of growth in the private sector since April 2024. In January, the public sector registered a record budget surplus, and retail sales rose sharply.

Neil Bellamy, consumer insights director at GfK, partly blamed the fall in consumer confidence on the rise in unemployment.

Unemployment rose to a post-pandemic high of 5.2 per cent in the three months to December, with youth unemployment rising to 16.1 per cent, the highest in more than a decade.

The trend “is increasing concerns about job security, particularly given the backdrop of weak wage growth”, said Bellamy. “With fewer entry-level opportunities available, those on lower incomes are already feeling the strain and this trend risks undermining the typically more optimistic outlook held by younger age groups,” he added.

The February decline in confidence, based on interviews conducted in the first half of the month, was mainly driven by weaker perceptions of people’s own finances, with a four-point drop regarding both the past year and the year ahead.

There was also a four-point drop in the index tracking people saying it was now a good time to make major purchases, to minus 14.

The decline in confidence will disappoint many economists who had expected lower inflation and mortgage interest rates to help improve sentiment and household consumption. UK consumer spending has been weak since the Covid-19 pandemic, reflecting elevated borrowing costs and inflation, limiting economic growth.

“Most of the macroeconomic determinants of consumers’ confidence improved in January, with inflation easing and house price inflation rising,” said Rob Wood, economist at Pantheon Macroeconomics, a consultancy. He also expected an improvement to minus 15.

Inflation declined to 3 per cent in January, and the Bank of England expects it to fall close to its 2 per cent target in April. The Nationwide house price index rebounded in January as the Budget uncertainty about property taxation waned.