Does consumer sentiment accurately forecast UK household consumption? Are there any comparisons to be made with the US?

This paper investigates how well survey data depicting consumer sentiment forecasts household’s consumption behavior for the UK. We consider whether consumer sentiment is able to predict the growth of household’s consumption, in addition to the growth of labor income. The empirical analysis finds that Consumer Confidence Indices (CCI) does predict the household’s consumption of durable goods. We also draw comparisons with recent analysis for the US. In addition, we analyze whether both the UK and US CCI are accurate and useful predictors of household’s consumption growth using directional analysis. We find that the UK confidence indicators predict better the US.