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Consumer confidence in Britain fell in October, with pessimism about the upcoming budget outweighing optimism about falling inflation, according to GfK’s latest consumer confidence index.
The index fell one point to -21, marking the lowest reading since March and underscoring the challenges the Labor government has faced in boosting economic optimism since coming to power in July.
GfK’s survey results show households are bracing for substantial budget changes as Chancellor Rachel Reeves prepares her first budget, which is expected to include around £40 billion in tax increases. Possible increases include making employers’ pension contributions subject to National Insurance and increases in capital gains taxes, measures that have increased consumer anxiety.
“As the Budget Statement looms, consumers are in a despondent mood despite a fall in inflation,” said Neil Bellamy, GfK’s director of consumer insights. The Labor government’s expected tax increases and overall budget tightening appear to have overshadowed recent improvements in inflation and GDP growth forecasts.
Concerns about economic and personal finances are increasing
The general economic situation index, which measures confidence in the economy over the past year, fell by one point to -28. This decline reflects consumer unease about the country’s economic performance, despite encouraging signs such as the International Monetary Fund’s upward revision of UK GDP growth from 0.7% to 1.1% for this year.
Inflation fell from 2.2% in August to 1.7% in September, the lowest level in three years, raising hopes that the Bank of England will cut rates by 25 basis points in both November and December. Interest rate cuts tend to increase consumer confidence because they reduce borrowing costs and ease financial pressure.
Consumers are cautious about their spending, but open to future purchases
GfK’s main purchasing index, which measures willingness to make significant purchases, rose two points to -21, suggesting demand for expensive products such as homes and cars could rebound if interest rates fall. In contrast, the savings index rose four points to +27, indicating that consumers remain cautious with their spending and prefer saving amid economic uncertainties.
According to data from the Office for National Statistics (ONS), retail sales have stagnated since the pandemic, with consumers showing a greater tendency to save. However, the positive change in the major purchase index suggests that some households may be preparing to spend as economic conditions improve.