UK consumers in ‘a despondent mood’ ahead of the budget, as confidence dips – business live

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

UK consumers are in a “despondent mood” ahead as households brace for tax rises in the Budget next week, amid fears that Britain could be entering a “vibecession”.

Research firm GfK’s monthly survey of consumer morale has slipped this month, to -21 points, the joint lowest this year.

It found that households are gloomier about the general economic situation of the country during the last 12 months, and also over the next year.

Neil Bellamy, consumer insights director at GfK, reckons consumers are ‘holding the breath” ahead of next Wednesday’s budget statement, explaining:

“Consumer confidence fell one point this month to -21, taking the score back down to the level last seen in March this year. Also falling one point are both personal financial situation over the last 12 months and general economic situation over the next 12 months.

The largest drop though was in our view of the general economic situation over the last 12 months, down five points to -42. On the plus side, the major purchase index rose two points and future personal financial expectations by one point. As the Budget statement looms, consumers are in a despondent mood despite a fall in the headline rate of inflation. This month’s Consumer Confidence Barometer paints a picture of people holding their breath to see what’s in store for them on 30th October.”

Although Labour ruled out increasing taxes on “working people”, various revenue-raising measures could be in the chancellor’s sights, such as capital gains tax (CGT), inheritance tax, employer national insurance contributions, and fuel duty.

A similar poll from PwC yesterday showed the same picture. Its consumer sentiment index dropped to the lowest level in 2024, led by “notable declines” among those over 65 and the lowest socioeconomic groups.

Over 70% of people polled by PwC are planning to make short-term spending cutbacks, and more households plan to spend less on Christmas presents and celebrations than those who say they’ll spend more.

The drop in confidence comes despite the easing of cost of living pressures recently, with inflation dropping to 1.7% last month.

Lisa Hooker, PwC’s leader of industry for Consumer Markets, says:

“Being first recognised in the US, we are seeing the impact of ‘vibecession’ in the UK where, despite falling inflation and interest rates and consumers being better off, sentiment has started to fall again.

Whether the starting point was the unrest across the UK in early August, the unseasonably awful summer weather or a combination of several factors, the typical post-election honeymoon vanished quickly, to be replaced by trepidation, particularly about the upcoming budget.”

The mood isn’t much cheerier in the business world, either.

Yesterday, the CBI reported that sentiment across the manufacturing sector fell in October, at the fastest pace in two years.

According to data provider S&P Global, confidence across the private sector has dipped to its lowest since November 2023.

The agenda

• 9am BST: Eurozone consumer inflation expectations

• 9am BST: IFO survey of German business confidence

• 11.30am BST: Bank of Russia sets interest rates

• 1.30pm BST: US durable goods orders for September

• 3pm BST: University of Michigan poll of US consumer confidence