In a concerning development, consumer confidence has experienced a significant decline as fears of a potential recession intensify.
GfK’s latest consumer confidence index recorded a drop of seven points to -20 in September, signalling heightened anxiety among households regarding personal finances and the broader economic outlook. Expectations for the economy over the next year also fell sharply, with the index plunging by 12 points to -27. Neil Bellamy of GfK attributes this decline to the withdrawal of winter fuel payments and warnings of looming challenges in tax, spending, and welfare.
Business confidence is similarly affected, with the Institute of Directors and the Confederation of British Industry expressing concerns over potential tax hikes in the upcoming Budget scheduled for October. The apprehension surrounding increased taxes is causing many businesses to postpone investment and hiring decisions, exacerbating fears of a recession. Prominent city leaders and economists have urged Chancellor Rachel Reeves to offer a more optimistic outlook.
Sir Philip Hampton, the former chairman of prominent institutions, has cautioned that negative political messaging can dampen the “animal spirits” essential for economic growth. He emphasises that political leadership should highlight the possibilities of innovation and change, even under financial constraints. While Labour leader Sir Keir Starmer acknowledges the potential for worsening conditions before improvement, he warns of a “painful” Budget ahead.
Reeves points to a £22 billion gap in public finances, which has been further strained by recent public sector pay rises. Sir Martin Sorrell, executive chairman of S4 Capital, suggests that Labour appears to be preparing the public for substantial tax increases, thereby fostering uncertainty. This lack of economic stability is undermining both consumer and business confidence.
The survey by GfK also reveals that households are becoming increasingly cautious with their spending, showing a marked decline in the willingness to make significant purchases. Bellamy notes that consumers are “retrenching”, prioritising the protection of their families amid growing economic uncertainty. The impact is particularly pronounced among older generations, especially following the cancellation of the winter fuel payment, intensifying concerns among pensioners.
Several economists, including Jagjit Singh Chadha from the National Institute of Economic and Social Research, have criticised Labour’s messaging. Chadha calls for a statement of confidence from the Government rather than constant warnings of hardship. Despite the decline in inflation and interest rates, which traditionally bolster household optimism, Andrew Wishart, senior UK economist at Berenberg, observes that Labour’s tone ahead of the Budget is heavily influencing the drop in confidence.
In conclusion, the recent decline in consumer confidence underscores the urgent need for more positive economic messaging. The current landscape of uncertainty and apprehension, fuelled by fears of significant tax increases and a harsh Budget, is affecting both households and businesses. Clear and optimistic communication from political leaders will be crucial in rebuilding confidence and stabilising the economic outlook.