UK consumer confidence defied expectations for improvement and fell to a new all-time low as households struggle under the pressure of the cost of living crisis.
The Consumer Confidence Index, a closely watched measure 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. . It was the lowest since records began in 1974.
Joe Staton, director of client strategy at GfK, said confidence “tumbled” in September to a new low as households “buckled”.[ed] under pressure from the growing UK cost of living crisis, driven by rapidly rising food prices, domestic fuel bills and mortgage payments”.
The fall defied expectations of a slight rise to minus 42 predicted by economists polled by Reuters, who believed there would be some improvement following the government’s £150billion package to freeze utility bills household energy.
The data comes the 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 who are already struggling to control their household finances, the increased cost of borrowing due to rising rates. . . may mean the breaking point, leading to an acceleration in the decline in demand,” said James Brown, managing partner at global consultancy Simon-Kucher & Partners.
Taking into account the freeze in energy bills, the BoE expects UK inflation to peak at 11% in October, up from 9.9% currently, a nearly 40-year high, which will further erode real household incomes.
The data also follows confirmation, ahead of Friday’s mini-budget, that the government will from November cancel the 1.25% hike in National Insurance contributions introduced in April.
Staton said “the mini-budget and longer-term program to stimulate the economy and help bring household finances back into balance will be a major test for the popularity of Liz Truss’ new government.”
The GfK Index, based on interviews collected 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 situation, at record highs.
Forward-looking indicators, which track expectations for the next 12 months, recorded the biggest decline, falling 9 percentage points for personal finance and 8 percentage points for the economy.
Economists expect the record level of consumer confidence to lead to lower spending, a trend recorded by the BoE in its survey of agents published Thursday.
It showed food retailers said customers were switching to cheaper products and cutting back on non-essential items, such as confectionery. Discount chains gained market share, while sales of household items, such as furniture, electrical appliances and home improvement products, fell.
Clothing sales were supported by the return to the office, but in hospitality, sales were down from pre-pandemic levels. Vacation bookings also fell and domestic tourism was constrained by rising gasoline prices.
However, demand was strong for financial services and legal advice, such as tax planning, capital release, debt consolidation and prepayment. Third sector organizations have also reported a sharp increase in the number of people seeking debt advice.