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Nationwide survey shows January uplift in consumer confidence

"May prove to be little more than a temporary bounce."

UK consumer confidence is at its highest level for five months, according to data released on Thursday.

The survey conducted by Nationwide and covering 1,000 people, shows that the consumer confidence index is up nine points to 47 in January.

Although the improvement has been welcomed by experts, the figure is still the second lowest since records began, 30 points below the average level. The Nationwide said that given the "challenging economic backdrop" this may prove to be a "temporary bounce".

The lender said the fall in inflation and improvements to the manufacturing and service sectors were the main catalysts for the increase in confidence levels.

Nationwide also noted the importance of the economic situation in the eurozone, arguing that strong links with Europe in terms of exports meant that a recovery in the region was vital for Britain's future economic prospects.

Robert Gardner, Nationwide's chief economist, said:

After ending 2011 close to all time lows, consumer confidence staged a modest recovery at the start of 2012, picking up by nine points to 47. Nevertheless, sentiment remains subdued by historic standards, with the main index almost 30 points below its long-run average.

Given the challenging economic backdrop, with the UK economy contracting in the final quarter of 2012 and the unemployment rate rising to its highest level since 1995 in recent months, the improvement may prove to be little more than a temporary bounce.

Looking forward, renewed hope that the UK will avoid a double-dip recession may support sentiment, especially since the downward trend in inflation is set to continue through 2012. But with the UK recovery likely to remain weak in the first half of the year, a significant and sustained rise in consumer confidence remains unlikely in the near term.

No doubt developments in the Eurozone will continue to play an important role in shaping how people view the UK's future economic prospects, given the strong economic and financial linkages with the single currency area and the UK's reliance on exports to drive its recovery at present.

There was also an increase in the number of people claiming it was a good time to spend on household goods. Forty per cent of respondents said they felt it was a good time to purchase, up from 31 per cent in December. Given the fragility of the economic recovery in the UK, these modest improvements will be welcome news to the government.

By Rob Pollard

Rob Pollard is a freelance writer. You can follow him on Twitter @_robpollard