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Consumer confidence in Britain fell sharply in September, wiping out the progress made so far this year, as anticipation of a “painful” Budget sapped household morale and threatened the UK’s spending recovery.
The GfK consumer confidence index — a measure of how people view their personal finances and broader economic prospects — fell seven points to minus 20, taking it back to January’s level, according to new data from the research company.
The month-on-month fall was the largest since October last year, when offered mortgage rates were at a near-peak. And it comes despite cheaper home loans becoming available, rising real wages and the retreat of inflation, and will reinforce concerns that Sir Keir Starmer and his ministers have been too downbeat about the economy.
Neil Bellamy, consumer insights director at GfK, said: “Following the withdrawal of the winter fuel payments and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the Budget decisions on October 30.”
In July, chancellor Rachel Reeves set an ominous tone when she claimed to have inherited a £22bn fiscal “black hole” from the Conservatives, an assertion vigorously denied by the Tories.
Last month, Starmer warned the autumn Budget was “going to be painful” because of the UK’s precarious public finances.
On Thursday he insisted he was setting out economic reality and would put the public finances straight. “We had to look at the financial situation, we have inherited a badly damaged economy, I’m not prepared to walk past that,” he told BBC West Country.
Andy Haldane, former Bank of England chief economist, last week told Sky News that the government had “generated a fear and foreboding and uncertainty among consumers, among businesses, among investors in UK plc”.
One senior Labour MP said: “We need to lighten up a bit.”
Consumer confidence is closely monitored by economists and policymakers because it shows how likely households are to spend their income on goods and services, which in turn affects economic growth.
A significant drop in consumer morale raises concerns about the anticipated slowdown in economic growth for the second half of the year.
Robert Jenrick, frontrunner to be the next Conservative leader, told the Financial Times: “The new Labour government has created a great deal of uncertainty among investors and that’s harming our economy.”
Neville Hill, co-head of the consultancy Hybrid Economics, said: “The downbeat fiscal assessments and glum commentary from the Prime Minister and chancellor may break the stride of the UK’s recent solid growth performance.
“If they persist in this pessimistic tone, there’s a danger it becomes a self-fulfilling prophecy.”
The economy rebounded strongly from last year’s technical recession, posting the fastest growth in the G7 in the first half of the year. However, output stagnated in June and July, supporting economists’ views that growth in the second half of the year will be slower.
The fall in the GfK index was driven by a sharp deterioration over the outlook on personal finances for the year ahead, down nine points, prospects for the general economy, down 12 points and the measure that tracks consumer propensity to make major purchases, down 10 points.
“These three measures are key forward-looking indicators so, despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government,” said Bellamy.
The survey was conducted in the first half of September before the Bank of England announced on Thursday it would hold interest rates unchanged at 5 per cent. The central bank cut borrowing costs by a quarter of a percentage point in August for the first time since the start of the pandemic, helping a reduction in mortgage rates.
A Treasury spokesperson said: “The chancellor has been clear that the prize for bringing stability to our economy is investment and well-paid jobs which make every part of the country better off . . .
“We have been honest about the state of the public finances we have inherited but we are acting to rebuild Britain based on our fundamental strengths, including our world-leading renewable energy and service sectors.”
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