UK consumer confidence plummets on rising cost of living and inflation
British consumer confidence has fallen to its lowest level in 11 months amid concerns about inflation and soaring fuel bills, suggesting rising costs of living will slow a recovery in household spending.
The U.K. consumer confidence index, a closely watched measure of how people view personal finances and the broader economic outlook, fell four points to minus 19 in January, according to research firm GfK.
It was the lowest reading since February 2021, when the country was under strict lockdown, and was below analysts’ expectations for no change last month.
“Despite some good news about easing Covid restrictions, consumers are clearly bracing for the prospect of soaring inflation, rising fuel bills and rising interest rates,” said Joe Staton, director of customer strategy at GfK.
All components of the index deteriorated. However, a sharp drop in consumers’ expectations of their personal finances over the coming year and a sharp drop in the proportion of those who think now is a good time to make a big purchase is particularly worrying about the pace of recovery in the UK as they are more linked to personal consumption patterns. close.
“The main buying index was down four points, which definitely shows that people are ready to tighten their belts,” Staten said.
Consumer spending has been the main driver of the UK’s economic recovery. In the third quarter, household consumption contributed the most to economic growth, accounting for 1.2 percentage points of the 1.3% quarter-on-quarter GDP growth.
The GfK index, based on interviews conducted between January 4 and 12, did not reflect Wednesday’s announcement of the easing of Covid restrictions. But Mr Staten said sentiment was unlikely to improve when the health emergency subsided, “because what worries us now is the cost of living crunch that will affect us in the coming months”.
On Wednesday, the Office for National Statistics reported that consumer inflation rose at the fastest annual rate in 30 years in December. Economists predict inflation will peak in April, when energy regulator Ofgem will raise its default price cap on energy tariffs.
The GfK figures are in line with ONS data released on Thursday, which showed that in the first half of January, two-thirds of people in the UK reported that their cost of living had increased compared to the previous month. Nearly 9 in 10 blamed rising food prices on food prices, and about 8 in 10 blamed rising energy bills for the pressure.
Linda Ellett, head of consumer markets, leisure and retail at KPMG UK, said their research showed that around a third of consumers will reduce discretionary spending in 2022 due to the rising cost of living.
“The tightening cost of living has also led those who were able to save during the pandemic to either sit on their savings and use them to offset costs or be conservative about how much they’re willing to spend this year,” she added.