Unlock the Editor’s Digest for free
Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.
Consumer confidence in the UK has dropped to its lowest point this year as people await potential tax increases in the upcoming Budget.
The GfK consumer confidence index, which measures how individuals perceive their personal finances and the overall economic situation, fell to minus 21 in October, according to data released by the research company on Friday.
Consumer confidence serves as an indicator of how likely households are to spend their income on goods and services.
October’s one-point decline brought the index to the same level as February and March, the lowest since December 2023, before a mid-year rebound in consumer confidence.
Another survey this week showed a decline in business confidence to its weakest point since last year.
Neil Bellamy, GfK consumer insights director, noted that consumers are feeling pessimistic leading up to the October 30 Budget. Chancellor Rachel Reeves is anticipated to rely heavily on tax hikes to address a supposed £40 billion funding gap.
The latest data on consumer confidence paints a picture of people waiting anxiously to see what the future holds, according to Bellamy.
Business confidence is also on the decline, with the S&P Global flash UK PMI composite output index dropping to an 11-month low of 51.7, leading companies to reduce staff numbers for the first time in 2024.
Chris Williamson, chief business economist at S&P Global Market Intelligence, which compiles the PMI index, attributed the decrease in business confidence and spending to “gloomy government rhetoric and uncertainty ahead of the Budget.”
While Reeves has promised not to raise income tax rates, national insurance, or VAT, she is likely to extend a freeze on personal tax thresholds beyond 2028 as a “stealth” tax measure that could generate £7 billion annually. She has also not ruled out increasing employers’ national insurance contributions.
In an article for the Financial Times, Reeves stated that the Budget would highlight a choice between investment and decline.
“I am choosing to invest in Britain so we can turn the page on 14 years of slow growth and start making the country better off,” she wrote.
Reeves also confirmed plans to revise the UK’s fiscal rules in the Budget in order to fund approximately £20 billion in additional investment through increased borrowing.
The chancellor mentioned that her “investment rule” would prevent a decline in public sector investment, as planned by the previous government.
However, despite decreases in inflation and mortgage rates, consumer and business confidence continues to deteriorate.
The consumer confidence index had previously dropped by seven points in September, reversing gains made since the beginning of the year.
Official figures from last month revealed weak household consumption this year, despite a rapid increase in wage growth, as cautious consumers prioritize saving over spending.
The GfK data suggests that uncertainty surrounding the government’s tax plans has prevented consumer morale from benefiting from positive economic data.
Households’ assessment of the economy fell by 5 points to minus 42, the lowest reading since March, with a smaller decline in expectations for the upcoming year, according to the index based on interviews conducted in the first two weeks of the month.
Following two years of significant price increases that impacted household finances, inflation dropped to 1.7% in September, the lowest level in over three years. This marked the first time inflation fell below the Bank of England’s 2% target since early 2021.
Market expectations for BoE interest rate cuts have increased this year in response to the inflation data, following a reduction in the benchmark rate from 5.25% to 5% in August, the first cut in over four years.
An additional analysis published by the National Centre for Social Research on Friday indicated that concerns about public services outweighed worries about taxation levels. Nearly half of the Britons surveyed in July expressed support for increased taxes and public spending, while dissatisfaction with the NHS reached an all-time high of 61%.