UK consumer confidence falls to lowest since 1974 as prices jump
Consumer confidence in the UK fell to a record low as concerns about a recession increased and soaring inflation tightened a squeeze on household finances.
GfK said its gauge of confidence declined 3 points to minus 44 in August, the lowest since records started in 1974. All of its measures fell, with the outlook for personal finances declining the most.
“A sense of exasperation about the UK’s economy is the biggest driver of these findings,” said Joe Staton, client strategy director at GfK. “The crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.”
The figures reflect a year-long surge in inflation, which hit a four-decade high of 10.1% last month, driving up the cost of everything from food to energy and clothing. The Bank of England expects prices growth to top 13% in the coming months, sharpening the pain for consumers whose real wages are falling at a record pace.
“Consumers are either already struggling with rising costs or are fearing what’s looming on the horizon,” said Linda Ellett, head of consumer markets, retail and leisure at KPMG UK. “Those storm clouds are now fast closing in, with higher costs reducing the discretionary spending power.”
A separate survey of business output by Lloyds Bank Group showed a drop across nine of the 14 industries tracked. The report showed 10 sectors saw a drop in demand, with tourism and recreation hit hardest.
“Inflationary pressures are currently decreasing activity and demand across the economy,” said Jeavon Lolay, Lloyd’s head of economics and market insights. “This includes a consumer-led slowdown, reflecting the fall in real incomes and ongoing supply constraints and staff shortages.”
The GfK report also showed:
- A 5-point increase the measure tracking whether it’s a good time to save
- Confidence was lowest in the economic situation over the past year
- The outlook for personal finance was lower than readings over the past year
- The index tracking whether it’s a good time to make major purchases fell 35 points from a year ago to minus 38.
The Labour Party has demanded an early recall of Parliament to tackle soaring household power and gas prices and stave off the worst effects of the cost-of-living crisis.
With analysts forecasting bills will be three times higher this winter than last, the utilities regulator Ofgem is due at the end of the month to set the new level of a price cap on domestic energy that will take effect in October. But the UK’s main opposition party said late on Thursday that households are already making “impossible choices” now to preempt higher costs later.
“With businesses and households on the brink, we cannot wait to act,” Thangam Debbonaire, Labour’s shadow leader of the House of Commons, said in a letter to Prime Minister Boris Johnson and the two candidates vying to succeed him, Liz Truss and Rishi Sunak. She called for the House of Commons to reconvene after its summer recess on 22 August, two weeks earlier than planned, in order to legislate to freeze domestic energy bills over the winter.
There’s little chance Labour will succeed in its demand for a recall: It wants to push through a £29-billion (R585-billion) plan to freeze bills at current levels until April, with the state absorbing the cost. But Johnson has vowed not to make any major new fiscal decisions that would hamstring his successor, and both Sunak and Truss have expressed scepticism about the opposition plan.
Truss, the front-runner in the leadership race, has warned against “throwing money” at a short-term fix while declining to flesh out her plans for helping the most vulnerable households over the winter. Meanwhile Sunak, the former chancellor, on Thursday called Labour’s plan a “blunt instrument” and a “gamble” that risks fuelling a 1970s-style inflationary spiral.
“It’s really risky for a government to borrow an enormous amount of money and pump that into the economy,” Sunak told ITV in an interview. “That’s when inflation gets worse, it’s like putting fuel on the fire.” BM