Household confidence in the UK economy has experienced a decline after six months of growth, according to recent data from GfK.
- The economic optimism index has fallen, indicating growing concerns about the future economic outlook over the next year.
- Despite the overall decline, there is increased optimism regarding personal finances, influenced by recent reductions in mortgage rates.
- The savings index has seen a noticeable rise, suggesting a trend towards saving rather than spending amid economic uncertainty.
- Though consumer confidence has improved compared to last year’s low, the outlook for the broader economy remains precarious.
The long-standing index, which has been a fixture since the 1970s, held steady at -13. This figure, while above the long-term average of -18, did not meet the expectations of City analysts. This reflects a burgeoning concern about the UK economy’s prospects in the coming year. The economic optimism index saw a decrease of 4 points, settling at -15, marking its first downturn since February.
Households are expressing less confidence in the economy’s performance over the last year, a period characterised by recessionary pressures. However, contrasting this economic concern is a more positive outlook on personal finances for the upcoming year. The GfK budget index noted an increase of 3 points to +6, a rise attributed to the recent dip in mortgage interest rates.
The Bank of England’s decision, effective from 1 August, to lower the base rate from 5.25% to 5% represents the first such cut since March 2020, offering borrowers some reprieve and fuelling expectations of additional cuts within the year.
In contrast to spending, there has been a significant climb in the savings index by 6 points to 33, reflecting a consumer preference for saving in light of higher interest rates amid ongoing economic uncertainties.
Consumer confidence remains higher than previous years, having rebounded from a record low of -49 observed in September 2022. This drastic decline coincided with the fallout from the controversial mini-budget announcement by Liz Truss and Kwasi Kwarteng, which led to financial market upheaval and increased mortgage rates.
In summary, while UK household confidence exhibits certain positive trends, overall economic uncertainties persist, cautioning a careful outlook.
