UK consumer confidence falls at fastest rate since 2016 Brexit vote, GfK says

UK consumer confidence fell by 11 percentage points in October to -24, the sharpest monthly drop since July 2016 outside the Covid pandemic, according to the data company GfK.

GfK said its long-running index – tracked by the government and the Bank of England for early warning signs from the economy since the early 1970s – last fell by that much in a single month after the 2016 EU referendum produced a vote to leave. Its largest ever one-month fall, of 25 points, came in March 2020, just after the first UK lockdown began.

The latest reading marks a reversal from the summer, when GfK said a "Burnham bounce", a strong World Cup run by the England men's football team and sunny weather had lifted consumers' mood.

Neil Bellamy, consumer insights director at GfK, said: "Relentless cost-of-living pressures, against an international backdrop of unresolved regional conflicts that are themselves contributing to domestic inflation now at 3.5%, appear to have swept aside the nascent optimism we saw following the appointment of a new UK prime minister this summer."

Squeeze on household finances

The fall comes as households face a renewed squeeze linked to the war in the Middle East. Petrol and diesel prices have risen close to record highs and energy bills have gone up before a difficult winter.

Analysis by 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. Consumer energy bills could reach £2,000 a year from January for a typical household, according to warnings cited in the report.

The major purchase index fell by 14 points to -22 in October, suggesting consumers may cut back spending over winter to make room for higher energy bills. Consumers also grew less confident about their own finances and about the wider British economy.

Budget pressure

With less than a week to go before the budget, the chancellor, John Healey, is under pressure to act on behalf of households while warning the government has limited room to intervene. He has pledged "breathing space" measures in his tax and spending speech to the Commons on Wednesday, but says the Middle East conflict has pushed UK borrowing costs to their highest level in decades.

Official figures released on Wednesday showed headline inflation rose by more than expected to 3.5% last month, while the government deficit came in at a worse-than-forecast £24.5bn.

Business investment subdued

Separate figures from the CBI showed investment intentions among manufacturers were subdued in the three months to October, with cost pressures remaining high. The lobby group's latest Industrial Trends Survey expects manufacturing output to stabilise over the next three months.

Cameron Martin, senior economist at the CBI, said: "If the government wants to meaningfully tackle the cost of living, it must give manufacturers the breathing space to invest and drive the productivity growth needed to sustain rising real wages."

The Treasury has been approached for comment.

Source: The Guardian.