UK consumers are regaining financial confidence amid falling inflation, NatWest CEO reveals

Consumer confidence in Britain is rising, and NatWest says the financial outlook is looking hopeful for the first time in two years.

Paul Thwaite, the bank’s CEO, noted that the relief in price pressures as inflation gradually eases appears to be resonating with the general public. While headline consumer price inflation remains above the Bank of England’s 2% target at 3.2%, it has fallen significantly from the peak of 11.1% in October 2022. NatWest’s economic forecast suggests a further decline to 2.5% by the end of the year.

“As inflation continues to decline and the Bank of England is expected to begin interest rate cuts later this year, individuals and families are expressing greater confidence in their financial circumstances,” Thwaite said on Friday morning. “For the first time since August 2021, a majority of consumers expect an improvement in their financial position over the next twelve months.”

Thwaite emphasized that these insights came from both internal and external studies monitored by bank executives.

Despite continued uncertainty about Britain’s economic trajectory, NatWest remains cautiously optimistic. With no particularly gloomy forecasts in sight, the banking group is confident that the majority of customers will meet their repayment obligations.

During the first quarter, NatWest allocated £93 million to protect against potential borrower defaults, a notable increase from £70 million in the same period of 2022, but lower than the £191 million expected by analysts.

“While differing perspectives exist and actual outcomes may vary, especially amid significant macroeconomic uncertainty, both domestically and internationally, customers continue to demonstrate resilience and restrictions remain minimal,” Thwaite noted.

NatWest shares rose 4.6% on Friday to hit a 14-month high of 303p per share. The rise propelled NatWest to the top of the FTSE 100 gainers, helping the index hit a new all-time high of 8,136.52 points in early trading.

Despite a 27% decline in pre-tax profits to £1.3bn in the three months to March, NatWest’s performance is remarkable, especially given the challenging comparison with a 50% rise in profits to £1.8bn in the same period last year, driven by a series of interest rate hikes by the Bank of England.

Thwaite attributed this to NatWest’s commitment to offering competitive interest rates to savers amid intense competition in the mortgage market, which coincided with a slowdown in the housing market.

NatWest also confirmed a reduction in the taxpayer’s stake in the bank, from 28.9% to 27.9%, following the government’s sale of a new tranche of shares ahead of Friday’s results. The government aims to further divest its stake to the public this summer, with the ambition to be completely out of ownership by 2025-2026.

Thwaite, formally appointed CEO in February, succeeded Alison Rose on an interim basis in July following her departure amid a dispute with Nigel Farage. Thwaite previously led NatWest’s business banking division.