Consumer confidence in the UK economy has dipped for the first time in six months, driven by growing apprehensions about the economic outlook for the upcoming year.
The long-running index, dating back to the 1970s, remained unchanged at -13, slightly above the long-term average of -18 but below City analysts’ expectations. This decline in optimism mirrors mounting concerns about the economic outlook for the next year. The economic optimism index from GfK fell by 4 points to -15, marking its first decline since February. Households also exhibit less assurance about the economy’s performance over the past 12 months, a period characterised by recession.
However, despite the overall pessimism regarding the broader economy, households show increased positivity about their personal finances for the year ahead. The GfK budget index rose by 3 points to +6, a rise influenced by a recent reduction in mortgage interest rates. The Bank of England’s decision on August 1 to cut the base rate from 5.25% to 5%, the first reduction since March 2020, has offered some relief to borrowers, with expectations of further cuts this year.
The survey also highlighted a notable rise in the savings index, which climbed 6 points to 33. This trend suggests that consumers are opting to save rather than spend, leveraging higher interest rates amidst economic uncertainty. While consumer confidence remains higher than in previous years—having recovered from a record low of -49 in September 2022—Joe Staton, GfK’s client strategy director, emphasised that the broader economic outlook remains precarious. Despite mixed results, the overall confidence figures are considerably more positive compared to a year or two ago.
The sharp decline in consumer confidence in September 2022 coincided with aftermath of the controversial mini-budget presented by Liz Truss and Kwasi Kwarteng, which triggered financial market turmoil and led to higher mortgage rates.
While household confidence in the UK economy has dipped after a six-month period of growth, optimism regarding personal finances persists amidst economic uncertainty.
