Consumer confidence in the UK has fallen sharply amid growing concerns over government plans for a “painful” budget, risking a hit to the economic recovery from the cost of living crisis.
The latest barometer of sentiment from the data company GfK found consumer confidence fell to the lowest level since March, wiping out progress made this year to rebuild household morale.
Neil Bellamy, the consumer insights director at GfK, said the “major correction” in the outlook for personal finances had come despite a return to stable inflation earlier this year, lower borrowing costs and resilient wage growth.
“Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on 30 October,” he said.
Keir Starmer warned last month that the new government would need to take “painful” decisions in the autumn budget after finding what Labour calls a “£22bn black hole” in the public finances.
The chancellor, Rachel Reeves, announced in August she would scrap winter fuel payments for most pensioners, shelve plans for social care reform and axe road, rail and hospital investment as the first stage of a plan to reduce borrowing.
However, the latest snapshot suggests the downbeat tone and prospect of tax and welfare changes hitting personal finances has the potential to hit the consumer spending recovery from the recession in the second half of last year.
“This is not encouraging news for the UK’s new government. Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend,” Bellamy said.
The figures show headline consumer confidence fell to -20, back to similar levels recorded earlier this year. The index measuring changes in personal finances over the past year was down two points at -9, while the outlook for the next 12 months was down nine points at -3.
The drop by seven points from a reading of -13 in August marked the sharpest monthly decline in consumer confidence since April 2020.
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Despite the sharp declines, the headline snapshot remains significantly higher than in late 2022, when consumer confidence collapsed to the lowest level since records began in 1974 as high inflation battered household finances.
Inflation peaked at 11.1% in October 2022, the highest level since the early 1980s, as households faced increases in the price of energy and food, leading the Bank of England to drive up interest rates to combat fast-rising prices.
The headline rate has fallen back sharply this year close to the Bank’s 2% target, allowing for a first cut in borrowing costs in four years in August.