UK consumer confidence plummeted in July as the rising cost of borrowing and high prices hit people’s morale, according to data that recorded the largest drop in sentiment for more than one year.
The consumer confidence index, a measure of how Britons view their personal finances and wider economic prospects, fell six points to minus 30 in July compared with the previous month, research group GfK said on Friday.
The latest reading marked the first fall in expectations since January and the largest drop since April last year.
Joe Staton, client strategy director at GfK, said that for the first six months of 2023 expectations had improved despite the continuing cost of living crisis, with double-digit inflation outpacing income growth and rising interest rates affecting homeowners and renters alike.
However, “suddenly, this resilience has collapsed”, he said, referring to the July data.
The survey was conducted in the first two weeks of July before news that inflation fell more than expected to 7.9 per cent in June led investors to trim their expectations of an interest rate rise at the next Bank of England meeting in August.
Markets are now pricing in an interest rate peak of 5.75 per cent to 6 per cent, which could ease pressure on mortgage-holders.
On Wednesday, data provider Moneyfacts reported that the average two-year fixed residential mortgage rate fell to 6.79 per cent, down from an average rate of 6.81 per cent on the previous day. Despite the fall, the figure was still more than double the rate offered at the start of last year.
Britons’ expectations for the general economy and their personal finances fell, dropping eight points and six points, respectively.
Linda Ellett, UK head of consumer markets, leisure and retail for KPMG, said that “despite efforts of householders to reduce costs where they can, for some those efforts are simply dwarfed by the sizeable jumps in mortgage or rent they are facing”.
The GfK index tracking whether consumers thought it was a good time to make big purchases, an indicator of spending intentions, dropped 7 points to minus 32.
Staton said he expected consumer confidence would not substantially improve until prices and interest rates fell. “Reality has started to bite and, as people continue to struggle to make ends meet, consumers will pull back from spending,” he added.
Source: Economy - ft.com
