- UK Consumer Confidence Declines
- Inflation Hits Household Finances
- Retail Sales Slump
This month, consumer confidence in the United Kingdom has declined as persistently high inflation strains household finances.
October saw a reading of -30 on GfK’s long-running Consumer Confidence Barometer, which measures how Britons perceive their own finances and the economy as a whole. This is a nine-point decline from September’s reading of -09.
This was the most significant decline since March 2020, when the United Kingdom government temporarily closed non-essential stores in response to the coronavirus pandemic.
Each of the five survey measures comprising the index experienced a decrease. However, the significant purchase index, which gauges individuals’ propensity to spend on expensive goods, was hit the hardest, falling by 14 points to -34.
The figures, according to Joe Staton, director of client strategy at GfK, demonstrated that the cost-of-living crisis continues to place “acute pressure” on many consumers.
Consumers ascribed increasing unease to several factors, including exorbitant energy and transport expenses, escalating mortgage and rental payments, a deteriorating labour market, and the ongoing challenges in the Middle East.
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It came as the Office for National Statistics reported that retail sales volumes in the United Kingdom decreased by 0.9% in the previous month, which was significantly worse than what economists had anticipated.
Online retailers and non-food establishments propelled the decline. Demand decreased for jewelry, watches, furniture, and lighting outlets, and unusually warm weather impacted autumn apparel purchases.
However, the ONS also reported that consumers were delaying purchases due to the present economic difficulties in the country.
Although the inflation rate in the United Kingdom has decreased substantially from double digits in August of last year, it remained at 6.7% in September, which is considerably higher than the 2% target set by the Bank of England.
With the intention of curbing price escalations, the BoE increased the base rate fourteen times in a row from December 2021 to August 2023, prior to settling on a 5.25 percent rate in September.
Nonetheless, additional interest rate increases are possible, in part as a result of the recent surge in oil prices subsequent to the commencement of the Israel-Hamas conflict and the reduction in production by OPEC+ nations.
This would result in escalating gas and electricity prices, leaving Britons with reduced disposable income to patronise retail sales due to increased mortgage payments. Consequently, the UK retail sector’s rehabilitation would slow.
According to Thomas Pugh, an economist at RSM UK, because consumer confidence plummeted significantly in October and real savings returned to pre-pandemic levels, a significant number of consumers will opt to save any surplus income instead of engaging in purchasing activities.
Moreover, increased mortgage and rent costs will consume a substantial portion of households’ income increases, thereby reducing their disposable income.
Consequently, although we anticipate a gradual increase in retail sales volumes and consumer spending, we do not anticipate that the rise in real earnings will precipitate a surge in consumer spending.
