(Bloomberg) -- UK consumer confidence climbed to the highest level in two years in January as slowing inflation made households more optimistic about their finances.

GfK Ltd. said its measure of sentiment increased 3 points to minus 19, the highest level since January 2022. Confidence is still weak by historical standards as the reading remains below the 10-year average of minus 15.

Household views of their financial prospects turned neutral, after 24 months of negative scores, the market researcher said Friday. All of its indicators improved this month, including readings on major purchases, savings and the general economic situation.

“Despite the cost-of-living crisis still impacting many households across the UK, consumers appear to be encouraged by the positive news about falling inflation,” said Joe Staton, client strategy director at GfK “On balance, while there is national and global turmoil, the Consumer Confidence Index has started 2024 on a positive note – let’s see if this optimism continues.”

The figures will be welcomed by Prime Minister Rishi Sunak, who is counting on a “feel-good factor” from rising living standards to revive the fortunes of his Conservative Party ahead of a general election expected this year. Chancellor of the Exchequer Jeremy Hunt has signaled more tax cuts in the March budget, wages are now outpacing inflation and markets are betting the Bank of England will start cutting interest rates by the early summer.

Despite the uptick in optimism, households feeling gloomier about their financial outlook still outnumber those feeling more secure by almost two to one, according to Linda Ellett, UK head of consumer, retail and leisure for KPMG. “While inflation and interest rates are gradually reducing, prices are still increasing and consumers are seeing costs still going up,” Ellett said. 

A survey from the Confederation of British Industry Thursday showed retail sales volumes falling at their fastest pace in three years in January, while attacks disrupting Red Sea shipping routes are threatening  to keep the prices of some goods elevated. 

Cash-strapped shoppers trying to save money boosted low-cost fashion retailers and discount supermarkets last year. That trend is set to continue in the coming months. Primark-owner Associated British Foods Plc said it’s more confident about profits this year. Ocado Group Plc is set to continue cutting prices for everything from mozzarella to hummus to win over customers.

©2024 Bloomberg L.P.