The UK faces a dip in consumer confidence ahead of Labour’s first Budget as concerns about tax increases grow.
- GfK’s consumer confidence index fell to its lowest point since March, highlighting challenges for the Labour government.
- Chancellor Rachel Reeves is expected to announce significant tax hikes, causing consumer anxiety despite declining inflation.
- The general economic situation index also dropped, reflecting consumer unease despite an improved GDP growth forecast from the IMF.
- In contrast, willingness to make major purchases increased slightly as savings caution persists amidst economic uncertainties.
The GfK consumer confidence index decreased by one point to -21 in October, marking its lowest level since March. This decline indicates the challenges faced by the Labour government in enhancing economic optimism, particularly as Chancellor Rachel Reeves prepares to present her maiden Budget. The prospect of considerable fiscal changes, including an anticipated £40 billion in tax hikes, is a source of apprehension for households.
Among the potential measures causing concern are plans to subject employers’ pension contributions to National Insurance and increase capital gains tax. These anticipated changes have overshadowed recent improvements in inflation and GDP forecasts. Neil Bellamy, GfK’s consumer insights director, commented, ”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, measuring confidence in the economy over the past year, fell by one point to -28. This decline is surprising given the IMF’s upward revision of the UK’s GDP growth from 0.7% to 1.1% and a decrease in inflation from 2.2% to 1.7% in September. These factors have led to speculation that the Bank of England might lower interest rates, typically an encouraging sign for consumers.
However, some positive signs emerged with the major purchase index, which saw a two-point rise to -21. This suggests a tentative rebound in demand for high-value goods, such as homes and vehicles, contingent on potential interest rate cuts. Conversely, the savings index increased by four points to +27, showing that many consumers remain prudent in their financial management. Retail sales have stagnated since the pandemic as consumers lean towards saving in the face of ongoing economic uncertainties.
Consumer confidence in the UK is strained by anticipated tax increases, despite promising economic indicators.
