UK consumer confidence has declined after a six-month period of growth.
- The index remains unchanged at -13, slightly above the long-term average.
- Economic outlook concerns have led to the dip in confidence for the next year.
- Households feel more positive about personal finances despite broader economic worries.
- Recent cuts in mortgage rates have contributed to improved personal finance outlook.
For the first time in half a year, UK consumer confidence has seen a decline, according to recent findings. The long-running index, dating back to the 1970s, has stagnated at -13. While this figure is slightly higher than the long-term average of -18, it did not meet City analysts’ expectations, indicating a mood of uncertainty and caution among consumers.
This drop in confidence is primarily linked to apprehensions surrounding the economic forecast for the upcoming year. Notably, the GfK economic optimism index fell by 4 points to -15, marking its initial decline since February. Such figures highlight the prevailing anxiety over the country’s economic trajectory, as households express less assurance about the economy’s performance over the past 12 months, a period overshadowed by a recession.
Interestingly, amid these broader economic concerns, there has been a shift in the perception of personal finances. Consumers are becoming more optimistic about their financial situations for the year ahead. The GfK budget index has risen by 3 points to +6. This shift has been attributed in part to a recent decrease in mortgage interest rates, offering some relief to borrowers. The Bank of England’s decision on August 1 to lower the base rate from 5.25% to 5%—the first cut since March 2020—has played a significant role in bolstering household financial sentiment.
Moreover, the survey revealed a notable increase in the savings index, which rose by 6 points to 33. This suggests that, amidst the economic uncertainty, consumers are opting to save rather than spend, leveraging higher interest rates in the process. Despite improvements from record lows in previous years, Joe Staton, GfK’s client strategy director, emphasised that the broader economic environment remains fragile. He remarked that although the results are mixed, the confidence levels are considerably better than a year or two ago.
The sharp decline seen in consumer confidence back in September 2022 was closely tied to the aftermath of a controversial mini-budget presented by Liz Truss and Kwasi Kwarteng. This policy resulted in financial market turmoil and drove mortgage rates up, creating a lasting impact on consumer sentiment.
Although consumer confidence shows signs of fragility, improvements in personal finance optimism highlight a complex economic landscape in the UK.
