Getty ImagesA long-running measure of how consumers feel about their finances and the economy has fallen sharply, raising concerns that the government’s warning that the Budget will be “painful” has shaken people’s confidence.
GfK’s Consumer Confidence Barometer has fallen further into negative territory since late August.
The index had recovered after years of the Covid pandemic, rising prices and higher interest rates clouded the outlook for many.
GfK said the latest measure did not provide “encouraging news” for the new UK government, while some economists linked the fall to Labour’s underwhelming rhetoric on the Budget.
Sir Keir Starmer said the budget on October 30 would be “painful”, with some taxes set to rise and spending.
Plans to test winter fuel payments have already been announced, meaning more than nine million pensioners will no longer be eligible for up to £300 this winter.
The new government has been keen to emphasize the economic legacy it took over from the previous Conservative administration, but some business leaders, such as Iceland’s Labor leader Richard Walker, have warned the government about “doom-laden prophecies”. .
Talk of tax hikes and increased employment entitlements has “shrunk confidence in the business environment in the UK”, according to the UK trade group. Institute of Directors (IoD).
GfK, a market research firm, said there were “major corrections” – or double-digit falls – for consumers’ perception of the overall economic situation, as well as how likely they were to make large purchases.
‘Fierce and Gloomy’
According to GfK’s barometer, people’s view of their personal finances in the future has also turned negative, dropping nine points to -3.
Other measures of consumer confidence also fell and overall, the main index fell by seven points to -20.
Nick Glynne, head of Buy It Direct Group, said the business, which sells major home appliances and furniture online, had seen a 9% drop in site traffic “since the doom and gloom promoted by Keir Starmer”.
“It’s almost a perfect map between when the government started to announce the likelihood of bad news in the budget and the drop in demand,” he told the BBC’s Today programme.
He said there was “a feeling that the budget is going to take money out of people’s pockets with the tax increase”, but added that there were other factors that had an impact on business, including customers concerned about mortgage costs.
“We hope that the government has survived a little bit of its hand, or has survived to manage expectations and come November, we hope to benefit from the continued fall in mortgage rates,” said Mr. Glynne.
The fall in consumer confidence was unexpected as it came in the wake of an interest rate cut by the Bank of England to 5% in August, potentially easing the pressure faced by some households. On Thursday, the Bank pointed to further cuts in borrowing costs, although “gradually”.
Inflation, which measures the rate at which prices are rising, also fell sharply and held steady at 2.2% in August, just above the Bank’s 2% target.
“Despite stable inflation and the prospect of further key interest rate cuts, this is not encouraging news for the new UK government,” said Neil Bellamy, chief consumer officer at GfK.
He suggested that after the withdrawal of winter fuel payments and warnings of “further difficult decisions” to come on tax, spending and welfare, consumers are “nervously” awaiting the next Budget on October 30 .
Asked whether “death and sadness have been exaggerated” last week, chancellor Rachel Reeves told the BBC: “The latest business polls continue to show a high degree of confidence in UK economy because this government has brought back stability.”
She also talked about how she now wants to “unlock the enormous potential” of the country.
The government has said it faces a £22 billion “black hole” in public finances this year, but around £9 billion of that reflects Reeves’ decision to award public sector pay deals above inflation .
Justin King, ex-chief executive of the supermarket Sainsbury’s and current chairman of the energy supplier Ovo Energy, said that similar to when a company is turned around, “the first thing you have to do is to bring people somewhere true”.
“I suspect there’s also a bit of expectation management going on,” he told the BBC’s Today programme. “They want the Budget to feel like it’s not as bad as people expect, so you might as well get all the bad news in advance and then maybe it won’t feel so bad.”
The latest figures show that the UK economy did not grow in July, a blow for the new government, which has made boosting the economy one of its key priorities.
The Bank of England also revised up how much it expects the economy to grow between July and September to 0.3% from 0.4%.
Bank of England Governor Andrew Bailey said on Thursday that he thought underlying confidence was growing, but that consumers “want to see evidence that this is sustained”.
He also noted that the rise in incomes following the rise in inflation has led to a “strong increase in savings” in the last year – more than the increase in consumer spending.
Although new figures from the Office for National Statistics showed that retail sales rose by 1% in August from 0.7% in July, as warmer weather and end-of-season discounts attracted shoppers .
The Treasury said the government had been “honest about the state of the public finances we inherited”, but added that it was “acting to rebuild Britain based on our core strengths, including our sectors of renewable energy and world services”.
The chancellor and prime minister are expected to outline a more hopeful and upbeat economic message at the Labor party conference next week, and at a major investment summit in mid-October.
But what is clear is that this is not a government that repeats the message that the Budget contains tax increases, welfare cuts and government departmental cuts.
