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A closely watched UK consumer confidence survey has registered its biggest month-on-month drop in more than three years, as households contend with surging mortgage and rental costs, and higher petrol prices.
The GfK consumer confidence index — a measure of how Britons view their personal finances and broader economic prospects — fell nine points from minus 21 to minus 30 in October, the research group said on Friday.
The reading — the largest monthly drop since March 2020, when the government introduced strict Covid-19 curbs — reversed rises in August and September. Economists polled by Reuters had forecast a slight increase to minus 20.
Joe Staton, client strategy director at GfK, said consumers’ “growing unease” had been caused by “fierce headwinds of meeting the accelerating costs of heating our homes, filling our petrol tanks, coping with surging mortgage and rental rates, a slowing jobs market and now the uncertainties posed by conflict in the Middle East”.
Investors and economists are watching consumer confidence closely because it indicates households’ willingness to spend, a key driver of economic growth.
The latest data will add to concerns over the health of the economy after output largely stagnated for more than a year, with fewer job vacancies and interest rates at their highest since 2008 as the Bank of England seeks to tame inflation.
Peter Arnold, UK chief economist at the consultancy Ernst & Young, said that “with the effect of a major rise in interest rates coming through, fiscal policy settings tight and the jobs market fraying, sluggishness is likely to remain the story over the rest of this year and into 2024”.
The GfK sub-index that tracks whether consumers think now is a good time to make big purchases, such as buying a car or house, dropped 14 points from September to minus 34 in October.
Staton said this fall would “concern retailers across the land in the run-up to Christmas”, when people typically spend more.
Respondents to the survey, which was based on interviews conducted in the first half of October, were less positive about their personal financial situation and the general economic picture compared with last month.
Consumer confidence has been volatile recently: wages have risen faster than prices for several months, helping to bolster people’s finances against the impact of higher interest rates.
However, that has been offset by more households being hit by higher mortgage payments, and a record rate of increase in residential rental costs.
Prices at the fuel pump are also climbing again, with the average litre of petrol now costing 156 pence, up from 146 pence in June.
Tomasz Wieladek, economist at investment company T Rowe Price, said the onset of winter and the Israel-Hamas war added to the negative mix.
“The cold weather and some rise in gas prices will raise worries about the potential for more inflation going forward,” he said, adding that “the recent rise in geopolitical risk . . . will renew concerns about higher oil prices, leading consumers to be more cautious with their spending”.
Source: Economy - ft.com
