UK consumer confidence falls to record low in September

UK consumer confidence defied expectations for an improvement and fell to a new record low as households struggle under the pressure of the cost of living crisis.

The consumer confidence index, a careful gauge of how people view their personal finances and the broader economic outlook, fell 5 percentage points to minus 49 in September, research group GfK said on Friday. That was the lowest since records began in 1974.

Joe Staton, director of client strategy at GfK, said confidence had “fallen” in September to a new low as households “fall[ed] under pressure from the UK’s growing cost of living crisis due to soaring food prices, domestic fuel bills and mortgage payments.’

The drop defied expectations of a slight rise to minus 42 forecast by economists polled by Reuters, who believed there would be some improvement after the government’s £150bn package aimed at freezing household energy bills.

The line chart of the index showing UK consumer confidence fell to a record low in September

The figures come a day after the Bank of England raised interest rates by 50 basis points to 2.25%, the highest since 2008, meaning borrowing will become more expensive for businesses and households.

“For consumers already struggling to keep their household finances under control, the increased cost of borrowing as a result of rising interest rates . . . it could mean the tipping point, leading to an acceleration in the decline in demand,” said James Brown, managing partner at global consultancy Simon-Kucher & Partners.

Incorporating the freeze on energy bills, the BoE expects UK inflation to peak at 11% in October from the current 9.9%, a nearly 40-year high, further eroding real household incomes.

The figures also follow confirmation ahead of Friday’s mini-Budget that the government will reverse from November the 1.25% rise in national insurance contributions introduced in April.

Staton said “the mini-budget and the longer-term agenda to boost the economy and balance household finances will be a major test of the popularity of Liz Truss’s new government”.

The GfK index, based on interviews gathered in the first two weeks of the month, showed scores on four of the five questions asked, which touch on personal finances and the broader economic picture, at record lows.

Forward-looking indicators, which track expectations for the next 12 months, recorded the biggest declines, down 9 percentage points for personal finances and 8 percentage points for the economy.

Economists expect record low consumer confidence to lead to a reduction in spending, a trend the BoE noted in its survey of agents published on Thursday.

It showed that food retailers reported that customers chose cheaper goods and cut back on non-essential items such as confectionery. Discount chains gained market share, while sales of home goods such as furniture, electrical goods and home improvement products declined.

Apparel sales were supported by the return to the office, but in hospitality, sales fell to pre-pandemic levels. Holiday bookings also weakened and domestic tourism was curbed by higher petrol prices.

However, demand was high for financial services and legal advice such as tax planning, equity release, debt consolidation and early repayment. Third sector organizations have also reported a large increase in people seeking debt advice.

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