Investing.com -- The outlook for consumers in the eurozone and U.K. is "slowly improving" thanks to an increase in disposable incomes and signs that interest rates may have peaked, according to analysts at Barclays.
Over the past five years, European households have been hit by two sharp negative shocks from the COVID-19 pandemic and a surge in energy prices, which forced them to reduce notably their real spending on goods and services.
But in a note to clients on Wednesday, the Barclays analysts argued consumers in the regions are seeing "green shoots," with retailers in particular revealing an uptick in trading activity. They added that this trend is being buoyed by an improvement in real wages, falling inflation and a "resilient" labor market.
On average, the Barclays analysts expect real private consumption to grow at a quarterly rate of around 0.3% and a cumulative increase of roughly 2% from the second quarter of this year to the fourth-quarter of 2025 both in the eurozone and the U.K.
Meanwhile, an expected rate-cutting cycle in the eurozone and Britain is tipped to "provide relief" for households, the analysts predicted. The European Central Bank has already unveiled a 25-basis point rate cut, bringing borrowing costs down from record highs. Elsewhere, even though the Bank of England is widely projected to leave rates on hold at its next policy meeting on Thursday, markets will be on the lookout for any clues about possible reductions later this year.
Although they flagged that the expected rise in consumption could be dampened in the near term due in part to continuing uncertainty surrounding the outcome of upcoming elections in France and the U.K., the Barclays said candidates across the political spectrum in both countries have made "the consumer a priority."