Household confidence in the UK economy experiences a downturn, marking the first decline after six months of steady improvement.
- The GfK economic optimism index dropped by 4 points, indicating increasing apprehensions about the UK’s economic prospects.
- Despite the economic pessimism, personal financial optimism among households has risen due to reduced mortgage interest rates.
- Consumers are choosing to save more, as evidenced by a 6-point rise in the savings index, amid economic uncertainties.
- The Bank of England’s recent interest rate cut has offered some relief, although the broader economic outlook remains fragile.
Household confidence in the UK economy has experienced its first decline after half a year of consistent growth. The setback is highlighted by the long-running index, which remains unchanged at -13, above the long-term average of -18 but below market expectations. This decline reflects increasing concerns about the economic outlook for the next year.
The GfK economic optimism index saw a 4-point decrease to -15, marking the first drop since February. This shift points to growing apprehension over the UK’s economic prospects moving forward, as households have also expressed less assurance about economic performance over the past year—a period overshadowed by a recession.
In contrast to the broader economic pessimism, optimism regarding personal finances has improved among households. This positive sentiment is largely attributed to a recent reduction in mortgage interest rates, which has bolstered the GfK budget index by 3 points to +6.
The Bank of England’s decision on August 1 to lower the base rate from 5.25% to 5%—the first cut since March 2020—has provided some respite to borrowers. Further rate reductions are anticipated this year, which could continue to alleviate financial pressures on households.
Amid these economic uncertainties, consumer behavior is shifting towards saving rather than spending. This is reflected in the savings index, which climbed 6 points to 33, indicating that consumers are capitalizing on higher interest rates to increase their savings.
While overall consumer confidence remains higher than previous lows, having rebounded from a record low of -49 in September 2022, the broader economic outlook remains fragile. This sentiment follows the significant drop in confidence post the controversial mini-budget by Liz Truss and Kwasi Kwarteng, which had caused market turbulence and spiked mortgage rates.
Despite some positive shifts in personal finance confidence, the overall economic outlook in the UK remains precarious.
