Access the Editor’s Digest for free
Enjoy the top stories handpicked by Roula Khalaf, Editor of the FT, in this weekly newsletter.
Consumer confidence in the UK took a hit in September, erasing the gains made earlier in the year. Anticipation of a challenging Budget dampened household spirits, threatening the country’s spending recovery.
The GfK consumer confidence index dropped 7 points to minus 20 in September, bringing it back to January levels, according to data from the research company. This significant monthly decline, the largest since October last year, comes despite favorable factors such as lower mortgage rates, rising real wages, and decreasing inflation.
Neil Bellamy, consumer insights director at GfK, noted, “Consumers are anxiously awaiting the Budget decisions on October 30 following the withdrawal of winter fuel payments and indications of tough choices ahead on tax, spending, and welfare.”
Chancellor Rachel Reeves’ statement about inheriting a £22bn fiscal “black hole” from the previous government and Sir Keir Starmer’s warning of a “painful” autumn Budget have added to concerns about the economy.
Former Bank of England chief economist Andy Haldane criticized the government for creating fear and uncertainty among consumers, businesses, and investors in the UK.
Concerns about the economy’s growth prospects are mounting as consumer confidence plays a crucial role in influencing spending behaviors, which in turn impact economic growth.
Robert Jenrick, a potential Conservative leader, blamed the new Labour government for creating uncertainty among investors, which he believes is harming the economy.
Neville Hill of Hybrid Economics warned that the government’s pessimistic tone could lead to a self-fulfilling prophecy and hinder the UK’s recent growth performance.
While the UK showed strong growth in the first half of the year, recent data suggests a slowdown in the second half. The drop in the GfK index reflects deteriorating outlooks on personal finances, the general economy, and consumer willingness to make major purchases.
Despite stable inflation and potential interest rate cuts, the decline in consumer confidence poses a challenge for the new government.
The survey conducted in September revealed mixed signals, as UK retail sales saw an uptick in August but the significant drop in consumer confidence raises concerns about future spending habits.
The Bank of England decided to maintain interest rates at 5 percent, emphasizing the need for stability in the economy to drive investment and job creation.
In conclusion, while challenges lie ahead, the government remains committed to rebuilding Britain based on its core strengths.