Consumer confidence in the UK has taken a downturn as concerns about Labour’s first Budget, which includes potential tax hikes, come to the forefront.
- The consumer confidence index has slipped to its lowest since March, indicating significant economic challenges for the Labour government.
- Households anticipate around £40 billion in tax increases, including employer pension contribution taxes, raising anxiety levels.
- Despite improvements in inflation and GDP growth predictions, the expected tax increases overshadow economic optimism.
- Interest rates might decrease, potentially boosting consumer confidence and major purchases.
Consumer confidence in the UK has recently experienced a decline, with growing anxieties over Labour’s forthcoming Budget overshadowing the positive news of decreasing inflation rates. According to the latest consumer confidence index by GfK, the index fell by one point to -21, marking its lowest point since March. This trend highlights the Labour government’s struggle to foster economic optimism since taking power in July.
The decrease in confidence is largely attributed to the anticipation of substantial fiscal changes. Chancellor Rachel Reeves is preparing to deliver her first Budget, which is expected to include approximately £40 billion in tax hikes. These potential increases are causing concern, with measures such as taxing employer pension contributions and capital gains expected to impact households significantly. 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.”
Although recent economic signals have been encouraging, consumer unease persists. The general economic situation index, which reflects confidence in the economy over the past year, dropped by one point to -28. This reflects apprehension about the country’s economic performance despite favourable projections, including the IMF’s upward revision of UK GDP growth from 0.7% to 1.1% for the year. Inflation likewise saw a decline, reaching 1.7% in September from 2.2% in August, marking its lowest level in three years. Such improvements have sparked hopes that the Bank of England might cut interest rates by 25 basis points in both November and December.
Interest rate cuts typically encourage consumer confidence by lowering borrowing costs and easing financial pressures. GfK’s major purchase index, which measures consumers’ willingness to buy big-ticket items, rose by two points to -21, suggesting a potential rebound in demand for significant purchases if interest rates drop. Conversely, the savings index increased by four points to +27, indicating a continued propensity for saving amid economic uncertainty. Data from the Office for National Statistics highlights that retail sales have remained stagnant since the pandemic, with a growing preference among consumers to save their money. However, the rise in the major purchase index suggests that some consumers might be ready to spend if economic conditions improve.
The outlook remains cautious as consumers navigate upcoming fiscal policies amidst mixed economic signals.
