UK consumer sentiment plunges as cost-of-living pressures deepen before budget

Traders Union
All News
Economic Data
UK consumer sentiment drops

Highlights

GfK consumer confidence index plunges by 11 points to -24 in October, the sharpest fall outside Covid since 2016 Brexit aftermath.
UK households have paid nearly £14,000 more on mortgages, loans, and utilities over five years, with annual energy bills projected to hit £2,000 from January.
Headline inflation rises above expectations to 3.5% and the government deficit widens to £24.5 billion, heightening pressure before the upcoming budget statement.

Confidence slump sharpens budget pressure

As reported by The Guardian, citing GfK, its consumer confidence index drops by 11 points in October to -24, marking the steepest monthly fall outside the Covid pandemic since the aftermath of the 2016 Brexit vote.

The data company says consumers are growing more pessimistic about both their personal finances and the wider UK economy. The major purchase index falls by 14 points to -22 in October, indicating households may be preparing to cut discretionary spending over the winter as higher energy bills absorb more of their budgets.

Neil Bellamy, consumer insights director at GfK, says relentless cost-of-living pressures, combined with unresolved regional conflicts that are feeding into domestic inflation now at 3.5%, appear to have erased the tentative optimism seen after the appointment of a new UK prime minister this summer. The index, tracked by the government and the Bank of England since the early 1970s for early warning signs in the economy, last records a bigger one-month fall in March 2020 at the start of the first UK lockdown.

Higher bills and weak industry sentiment weigh on outlook

Households are facing a renewed squeeze as the war in the Middle East pushes up petrol and diesel prices and lifts energy bills ahead of winter. Analysis from the Trades Union Congress shows UK households have paid almost £14,000 on average in additional costs for mortgages, loans, energy and water bills over the past five years.

With less than a week before the chancellor's tax and spending statement to the House of Commons, the government is under pressure to respond amid warnings that typical annual consumer energy bills could reach £2,000 from January. John Healey has pledged to use the statement to announce "breathing space" measures, but he also warns that the government's room to intervene is limited as the Middle East conflict drives UK borrowing costs to their highest level in decades.

Official figures released on Wednesday show headline inflation rises more than expected to 3.5% last month, while the government deficit comes in worse than forecast at £24.5 billion. Separate figures from the CBI also show subdued investment intentions among manufacturers in the three months to October, although the lobby group says output is expected to stabilise in the next three months as businesses continue to manage high cost pressures.

Our earlier article on Chancellor John Healey’s deficit-reduction stance ahead of the October 28 Budget explained that he intends to stick with an IMF-backed plan to bring down the UK deficit while still trying to offer some “breathing space” for households and businesses. It also noted that August GDP rose 0.1%, signalling modest resilience, even as political pressure builds over how far the government can ease living-cost and business strains without weakening fiscal discipline.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.