Consumers pessimistic as Labour fails to calm fears

Consumers became more despondent in October as anxieties about Rachel Reeves’s first budget next week outweighed optimism over falling inflation falling, according to a survey.
GfK’s consumer confidence index, which has been published since the 1970s, slipped by one point to -21 in October from -20 in September, the lowest reading since March.
The latest decline underscores that the Labour government has failed to engineer greater optimism over the UK economy since entering office in July. Between 2010 and 2024, the period covering the Conservatives’ period in power, the average monthly GfK consumer confidence reading was -17.
Experts said that household pessimism had accelerated over the past month due to uncertainty over the scale of tax rises at the budget next Wednesday. The chancellor could announce £40 billion of fiscal tightening, mostly via tax increases including subjecting employers’ pension contributions to national insurance and capital gains tax rises.
Neil Bellamy, consumer insights director at GfK, said: “As the budget statement looms, consumers are in a despondent mood despite a fall in the headline rate of inflation.”
Consumers expressed greater concern about the performance of the UK economy over the last year and their personal finances. The country slipped into a brief and shallow recession at the beginning of this year but growth has since recovered. Consumer optimism for growth over the coming year also deteriorated, with the general economic situation index falling by one point to -28.
Experts are more upbeat about the health of the economy than consumers. Earlier this week, the International Monetary Fund raised its forecast for UK GDP growth this year sharply to 1.1 per cent from 0.7 per cent.
According to figures released by the Office for National Statistics this month, CPI inflation declined to 1.7 per cent in September from 2.2 per cent in the previous month, a three-year low.
The larger-than-expected drop amplified expectations that the Bank of England will lower interest rates by 25 basis points at its November and December meetings from 5 per cent. Consumer confidence typically improves as people anticipate more interest rate cuts.
The GfK index is closely watched by economists for indications on whether households are poised to increase or decrease spending in the coming months. According to the ONS, retail sales have been sluggish since the Covid-19 pandemic thanks to a greater tendency to save among households. GfK’s saving index increased by four points to +27.
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The research company’s major purchase index jumped by two points to -21, suggesting that demand for things like housing and cars could rise in the coming months if the Bank of England loosens monetary policy.
The Treasury was contacted for comment.