UK consumer confidence has defied recovery hopes and plunged to a new all-time low, as homes struggle under pressure from the cost of living crisis.
Research group GfK said on Friday that the consumer confidence index, a closely watched measure of how people view their personal finances and macroeconomic prospects, fell 5 percentage points to minus 49 in September. It was the lowest since records began in 1974.
GfK Client Strategy Director Joe Staten said confidence had “fell” in September and homes “buckled” to a new low.[ed] Under pressure from a rising cost of living crisis in Britain due to rapidly rising food prices, household fuel bills and mortgage payments”.
The fall defied expectations of a small increase to a minus 42 forecast by economists polled by Reuters, who thought there would be some improvement following the government’s £150bn package aimed at defraying household energy bills.
The data comes a day after the Bank of England raised interest rates by 50 basis points to 2.25 per cent, the highest since 2008, meaning that borrowing will become more expensive for businesses and households.
“For consumers who are already struggling to keep their household finances under control, the rate hike results in increased borrowing costs . . . said James Brown, managing partner at global consultancy Simon-Kutcher & Partners. “May indicate a breaking point, leading to a reduction in demand.”
Including the energy bill freeze, the BoE expects UK inflation to hit 11 per cent in October from its current 9.9 per cent, a nearly 40-year high, further reducing households’ real incomes.
The data also follows confirmation from Friday’s mini-Budget that the government would reverse the 1.25 percent increase in national insurance contributions introduced in November to April.
Staten said that “the mini-budget, and the long-term agenda to help steer the economy and rebalance domestic finances, will be a major test for the popularity of the new government of Liz Truss”.
The GFK index, based on interviews collected in the first two weeks of the month, shows scores with respect to four out of five questions that touch on personal finance and the macroeconomic picture at record highs.
Forward-looking indicators, which track expectations for the next 12 months, posted the biggest declines, falling 9 percentage points for personal finance and 8 percentage points for the economy.
Economists expect record-low consumer confidence to result in a reduction in spending, a trend recorded by the BoE in a survey of its agents. published on Thursday.
It showed that food retailers reported customers opting for cheaper goods and cutting back on non-essential items such as confectionery. Discount chains gained market share, while sales of home goods, such as furniture, electrical goods and home-improvement products, declined.
Clothing sales were supported by a return to office, but in hospitality, sales were down at pre-pandemic levels. Holiday bookings also weakened and domestic tourism was limited by higher petrol prices.
However, demand was strong for financial services and legal advice, such as tax planning, equity releases, debt consolidation and prompt repayment. Third sector organizations also reported a large increase in people seeking credit advice.