UK consumer confidence plummets amid painful budget squeeze | Economy

Consumer confidence in the UK has fallen sharply as concerns grow over the government's massive budget plans and the recovery risks being hit by a cost-of-living crisis.

Consumer confidence has fallen to its lowest level since March, erasing all the progress made this year to turn around household spending, according to the latest sentiment index from data firm GfK.

Neil Bellamy, GfK's consumer insights director, said earlier this year that personal finances had been significantly revised despite stable inflation, lower borrowing costs and robust wage growth.

He said consumers were anxiously awaiting the Budget decision on October 30, following a clear warning that winter fuel bills would be scrapped and more difficult decisions on taxes, spending and welfare would be made.

Keir Starmer said the new government would have to make painful decisions in its autumn budget after Labour discovered last month what it called a $22 billion black hole in the public finances.

Chancellor Rachel Reeves announced in August that she would scrap the winter fuel payment for most pensioners, shelved plans to reform social care and scale back investment in roads, rail and hospitals – the first step in a plan to reduce borrowing.

However, recent developments suggest that the negative sentiment and outlook for personal finances due to tax and welfare reforms could take a toll on consumer spending as it recovered from the recession in the second half of last year.

This is not encouraging news for Britain's new government. Strong consumer confidence is crucial because it underpins economic growth and greatly boosts shoppers' willingness to spend, Bellamy said.

According to the figures, headline consumer confidence fell to -20, back to a similar level recorded earlier this year. An index measuring changes in personal finances over the past year fell two points to -9, while outlook for the next 12 months fell nine points to -3.

The seven-point drop from -13 in August was the largest monthly decline in consumer confidence since April 2022.

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Despite the sharp decline, the overall figure remains significantly higher than at the end of 2022, when consumer confidence plunged to its lowest level since records began in 1974 and high inflation took a toll on household finances.

Inflation peaked at 11.1% in October 2022, the highest level since the early 1980s. Households faced rising energy and food prices, and the Bank of England raised interest rates to curb the soaring prices.

The base rate has fallen sharply this year, moving closer to the bank's 2% target, and borrowing costs were cut in August for the first time in four years.

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