Consumer confidence took a battering in September as households worried about potential tax rises in the upcoming Budget, according to a closely-watched index.
Prime Minister Keir Starmer’s warnings of a’ painful’ Autumn Budget combined with Chancellor Rachel Reeves’ claims of a £22billion ‘black hole’, the removal of the winter fuel allowance, and failure to dampen rumours of tax rises, have sent household sentiment plummeting.
Market research company GfK’s long-running Consumer Confidence Index for September slumped to minus 20.
The last time the index declined so steeply was in April 2022, in the wake of Russia’s invasion of Ukraine which sent energy costs soaring.
Dwindling: GfK’s Consumer Confidence Index for September slumped to -20
GfK said the data did not provide ‘encouraging news’ for the new Labour Government, which had initially been elected with a wave of optimism.
Neil Bellamy, consumer insights director at GfK, said: ‘Headline consumer confidence has… taken us back to a similar level seen at the beginning of this year’.
He added: ‘Despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new Government.’
Looking ahead to the Autumn Budget, Bellamy said: ‘Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend.
‘Following the withdrawal of the Winter Fuel Payment, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the budget decisions on 30 October.’
Britons have been warned to expect a ‘painful’ Budget on 30 October, with a range of tax hikes rumoured to be on the cards.
The Bank of England Governor Andrew Bailey said on Thursday that he thought underlying confidence was rising but that consumers ‘want to see evidence that this is sustained’.
Retail sales up in August
Despite lower consumer confidence, retailers saw sales rise last month as summer discounts and warmer weather helped boost clothes stores and supermarkets, according to official estimates.
Food sales provided a significant boost to retailers in August, with annual sales rising to the highest level since the summer of 2021, the Office for National Statistics said.
Total retail sales volumes, which measure the quantity bought, edged up 1 per cent in August, the ONS said. Most analysts forecast an increase of around 0.4 per cent.
Boost: Retailers saw sales rise last month, data from the ONS claims
The figure follows a 0.7 per cent rise in volumes in July, which was revised up from a previous estimate of a 0.5 per cent increase, as discounting and sports events including the Euros bolstered sales.
Sales volumes rose by 1.2 per cent in the three months to August, when compared with the three months to May.
Grant Fitzner, chief economist at the ONS, said: ‘Retail sales rose in August as warmer weather and end-of-season promotions helped to boost sales, most notably for clothing and food shops.’
He added: ‘Supermarkets, in particular, contributed to the largest annual rise for food sales since the summer of 2021.
‘Looking at the broader picture, retail sales have also increased across the three month and annual period, following strong growth from online retailers. However, sales overall remain slightly below their pre-pandemic level.’
Kris Hamer, director of insight at the British Retail Consortium, said: ‘With summer in full swing, sales growth picked up in August.
‘Computing performed well as extensive summer discounting encouraged consumers to upgrade their tech, and students organised themselves for the new academic year.
‘Food, cosmetics, and fashion sales also had a good month as people hosted family and friends for picnics and barbecues and prepared for summer holidays and other social events.
‘Meanwhile, furniture and household goods failed to shine, as people opted to spend their money on experiences instead.
‘Clearly, the high cost of living still bears down on consumers, meaning demand may dip further when energy bills rise once again in October.’
David Belle, founder and trader at Fink Money, told Newspage: ‘The retail sector came to life in August. Though the economy is flatlining, there is money out there somewhere. I don’t usually credit the Bank of England but they have played it well by keeping rates on hold.’
Next said on Thursday that it had seen better-than-expected sales in the first six weeks of its second half, which reflected an improvement in the weather.
However, Primark reported a fall in UK underlying sales in its latest quarter and on Tuesday, B&Q and Screwfix owner Kingfisher said demand for kitchens and bathrooms was weak.
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