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UK consumers turn more confident but inflation challenges remain - GfK

FILE PHOTO: People browse stalls at a street market in east London

By Suban Abdulla

LONDON (Reuters) - British consumers have turned more upbeat about their personal finances and the outlook for the economy but their mood remains a long way off pre-pandemic levels, market research firm GfK said on Friday.

After some other recent signs of improvement in the economy, GfK's headline consumer confidence index rose by more than expected in February, increasing by seven points to -38, climbing further away from September's -49 record low.

Economists polled by Reuters had forecast a smaller rise to -43 from January's -45.

The seven-point increase was the biggest month-on-month improvement in almost two years although the latest reading was much weaker than the -7 in February 2020, just before the coronavirus pandemic hit Britain.

Joe Staton, GfK's client strategy director, said consumers were suddenly more optimistic about their personal finances and the general economic situation, especially for the coming year, despite the continued hit to their incomes from high inflation.

The GfK survey's measure of how consumers view the economy over the next 12 months jumped to -43 from -54 in January, while households' feelings about their personal finances increased by nine points, GfK said.

There was also increase in GfK's sub-index of shoppers' willingness to make expensive purchases.

"However, many challenges remain and this may be nothing more than a bubble of hope – and bubbles always burst," Staton said, pointing to the risk of a recession.

Linda Ellett, UK head of consumer markets at KPMG, said consumers were turning to savings and debt as higher prices squeezed household budgets.

"Nearly half of consumers surveyed by KPMG say they are using savings to help meet their higher essential costs, whilst one in 10 are using credit more," Ellett said.

The Bank of England earlier this month forecast a five-quarter downturn starting in early 2023 and it hinted that it was close to ending its run of interest rate hikes.

However, the economy could be on course to dodge a slump that long - businesses reported a surprise return to growth in a survey published this week and there were also signs of unexpected strength in activity in public finances data.

Official data published last week showed basic pay grew faster than expected in the final quarter of 2022 although it was still far behind inflation which stood at 10.1% in January.

The survey of 2,000 people was conducted between Feb. 1 and Feb. 13.

(Reporting by Suban Abdulla; Editing by William Schomberg)