Consumer confidence in the UK has waned as anticipation builds for Labour’s upcoming Budget.
- The GfK consumer confidence index saw a decline, reflecting concerns over potential tax hikes.
- Chancellor Reeves is expected to propose significant tax increases, adding to consumer unease.
- Despite inflation dropping, economic optimism remains subdued due to fiscal tightening.
- UK households demonstrate cautious spending, with a preference for saving amidst uncertainty.
The recent dip in consumer confidence, as reported by GfK, underscores the apprehension surrounding Labour’s first Budget. The consumer confidence index dropped by one point to -21, marking its lowest level since March. This indicates growing skepticism about economic improvements since Labour took power in July. The forthcoming Budget, championed by Chancellor Rachel Reeves, is expected to introduce around £40 billion in tax increases, heightening consumer anxiety.
Central to these concerns are potential measures like subjecting employers’ pension contributions to National Insurance and raising the capital gains tax. As Neil Bellamy, GfK’s consumer insights director, remarked, ‘As the Budget statement looms, consumers are in a despondent mood despite a fall in the headline rate of inflation.’
The general economic situation index, which evaluates economic confidence over the past year, also witnessed a decline, slipping by one point to -28. This decrease points to consumer skepticism about the UK’s economic performance, even as optimistic indicators emerge. Notably, the IMF revised its UK GDP growth forecast upward from 0.7% to 1.1%, and inflation hit a three-year low of 1.7% in September.
Interest rate cuts by the Bank of England, anticipated in November and December, could offer relief by reducing borrowing costs and boosting consumer confidence. Despite stagnation in retail sales, there is hope that the major purchase index’s rise by two points to -21 foreshadows renewed demand for significant purchases like homes and automobiles.
Conversely, the savings index climbed by four points to +27, highlighting a cautious approach by consumers who prefer saving over spending amid fiscal uncertainties. This heightened cautiousness is reflected in data from the Office for National Statistics, which indicates a stagnation in retail sales post-pandemic. The willingness to save rather than spend is emblematic of an economy in transition.
Ultimately, while fiscal policies spark consumer caution, impending interest rate cuts may bolster spending confidence.
