UK consumer confidence plummets amid expectations of painful budget

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Consumer confidence in the UK fell sharply in September, erasing all the progress made so far this year, with expectations of a painful budget dampening household morale and threatening the UK's spending recovery.

The GfK Consumer Confidence Index, which measures how people feel about their personal finances and the broader economic outlook, fell seven points to minus 20, back to January levels, according to the latest data from the research firm.

The monthly fall is the biggest since October last year, when mortgage rates were near their peak, and will reinforce concerns that Sir Keir Starmer and his ministers are being too pessimistic about the economy, despite the availability of affordable housing, rising real wages and falling inflation.

Neil Bellamy, GfK’s consumer insights director, said: “Consumers are anxiously awaiting the Budget decision on October 30, with the winter fuel subsidy being withdrawn and a clear warning that more difficult decisions on tax, spending and welfare are coming.

In July, Chancellor of the Exchequer Rachel Reeves created ominous sentiment when she claimed the government had inherited a $22 billion budget surplus from the Conservatives, a claim the party strongly denied.

Last month, Starmer warned that the autumn budget would be painful because of Britain's fragile public finances.

On Thursday, the Prime Minister laid out the economic reality and insisted he would fix the public finances. “We had to look at the fiscal situation, we inherited a badly damaged economy. I'm not prepared to just let that go,” he told ITV West Country.

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The Bank of England's former chief economist, Andy Haldane, told Sky News last week that the government had created fear, foreboding and uncertainty among consumers, businesses and investors in British public companies.

“We need to take it a little more lightly,” said a senior Labour MP.

The consumer confidence index is closely monitored by economists and policymakers because it shows how much households are likely to spend their income on goods and services. The consumer confidence index shows how much households are likely to spend their income on goods and services, which affects economic growth.

Fears are growing that economic growth will slow in the second half of the year as consumer sentiment falls sharply.

Robert Jenrick, the leading candidate to become the Conservative leader, told the Financial Times: “The new Labour government has created a lot of uncertainty among investors and that is damaging our economy.

“The pessimistic fiscal assessment and gloomy commentary from the prime minister and chancellor could have a negative impact on the UK's recent strong growth performance,” said Neville Hill, co-chairman of consultancy Hybrid Economics.

If they persist in this pessimistic tone, it risks becoming a self-fulfilling prophecy.

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The economy recovered strongly from last year's technical recession, posting the fastest growth in the G7 in the first half of the year. But output stagnated in June and July, supporting economists' views that growth will be slower in the second half.

The decline in the GfK index was driven by a nine-point drop in personal financial outlook for the coming year, a 12-point drop in overall economic outlook and a 10-point drop in a measure tracking key consumer purchasing tendencies.

Bellamy said these three indicators were forward-looking key indicators, so despite the stable inflation and the possibility of further rate cuts, they were not encouraging news for the new UK government.

The survey was conducted in the first half of September.

Figures released by the Office for National Statistics on Friday showed retail sales in Britain rose in August as warmer weather boosted spending on clothing and supermarkets.

The volume of goods purchased rose by 1% in July and August, exceeding economists' expectations of a 0.4% rise and hitting the highest level since July 2022, according to the ONS.

But Ashley Webb of Capital Economics said the notable drop in consumer confidence in September suggests recent retail sales trends could cool in the coming months.

The BoE said on Thursday it would keep interest rates at 5%. The central bank cut borrowing costs by 0.25 percentage points for the first time since the pandemic began in August, helping to lower mortgage rates.

A Treasury spokesperson said: The Treasury Secretary has made it clear that stabilizing the economy will create investment and good-paying jobs, which will improve lives in every part of the country.

They added: “We have been honest about the state of the public finances we inherited, but we are acting to rebuild the UK by building on our fundamental strengths, including our world-leading renewable energy and services sectors.”

This article has been amended to clarify that Sir Keir Starmer is speaking to ITV West Country, not BBC West Country, as originally stated.

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