Consumer confidence has fallen sharply on growing concerns that Labour’s rhetoric is fueling economic fears, raising the possibility of a recession in Britain.
GfK’s latest consumer confidence index fell seven points to -20 in September, with households increasingly concerned about their personal finances and the overall economic outlook. The survey also found that expectations for the economy in the coming year fell by 12 points, with the outcome falling to -27.
GfK’s Neil Bellamy attributed the drop in confidence to “the withdrawal of winter fuel payments and warnings of tough decisions on tax, spending and welfare.” Business confidence has also fallen, with both the Institute of Directors and the Confederation of British Industry reporting growing concerns about possible tax rises in the October Budget.
Fears of higher taxes have led many companies to postpone investment and hiring decisions, raising concerns that the government’s approach could push the economy into recession.
City leaders and economists have called on Chancellor Rachel Reeves to offer a more positive outlook. Sir Philip Hampton, former chairman of the Royal Bank of Scotland and Sainsbury’s, warned that pessimistic political messages risk stifling the “animal spirits” needed for economic growth. “Political leadership must remind people that innovation and change are possible, even with financial constraints,” he said The Telegraph.
Labor leader Sir Keir Starmer has acknowledged that conditions could worsen before they improve, warning of a “painful” budget ahead. Reeves has cited a £22bn shortfall in the public finances, which is being exacerbated by recent public sector pay rises.
Sir Martin Sorrell, executive chairman of S4 Capital, noted that Labor “seems to be preparing us for significant tax increases”, adding to the uncertainty. He noted that the lack of economic stability is causing the confidence of both consumers and businesses to waver.
Households are more cautious in their spending, with GfK research showing that the willingness to make major purchases has fallen sharply. Bellamy noted that consumers are “cutting back” and focusing on protecting their families amid growing economic uncertainty.
The impact has been felt most acutely among older generations, especially following the cancellation of the winter fuel payment, a move that has increased concerns among retirees about the future.
Economists, including Jagjit Singh Chadha of the National Institute of Economic and Social Research, have criticized Labour’s message. Chadha noted: “What we need is a vote of confidence from the government, not constant warnings of hardship.”
Despite falling inflation and interest rates, which should generally boost household optimism, Andrew Wishart, senior UK economist at Berenberg, suggested Labour’s tone on the budget is weighing heavily on confidence.