UK consumer confidence falls sharply in January

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UK consumer confidence fell sharply in January to its lowest level in more than a year as rising government borrowing costs and warnings of job cuts weighed on the economy.

GfK’s consumer confidence index – a measure of how people view their finances and the broader economic outlook – fell 5 points to 22, the lowest since the end of 2023. according to new data.

Consumer confidence provides a forward-looking measure of household spending – pessimistic sentiment means people are more likely to save than buy more. Households saved more money last year, reducing spending cuts, even though income growth is higher than inflation through 2024.

The monthly drop in GfK’s consumer confidence index was the biggest since September 2024, as consumers worried about tax rises in the October Budget.

Neil Bellamy, director of consumer insights, at NIQ GfK, noted a sharp decline in confidence about the wider UK economy. He said: “These figures highlight that consumers are losing confidence in the UK’s economic prospects.”

The survey was conducted in the first half of January, when the UK’s 10-year borrowing costs rose to record highs since the financial crisis, threatening the government’s ability to meet its fiscal policy and raising risk. of tax increases.

Borrowing costs are reduced based on a Surprise drop in December UK inflation but stay higher than in the fall.

Business surveys in early January were also positive reduced hiring estimatesdriven in part by the upcoming increase in employer’s national insurance contributions, which will take effect in April.

Confidence was lower than the minus 18 forecast by economists polled by Reuters but was in line with the expectations of Ellie Henderson, an economist at investment bank Investec.

Henderson said the news of rising borrowing costs and potential job losses “will likely affect the outlook and prospects of the economy and the finances of households”.

Consumers are “very concerned about job prospects,” said Tomasz Wieladek, chief European economist at investment firm T Rowe Price.

The GfK saving index, which is not included in the general confidence index, jumped 9 points to 30. Bellamy called the increase “unacceptable” as it showed households were prepared for tough times. of the economy by prioritizing savings over spending.

Average UK household savings, the share of disposable income, was 10.1 per cent in the three months to September, above the 5.5 per cent average for the 2016-2019 period, according to statistics from official. Although real incomes have been rising for more than a year and a half, household consumption per capita remained 2.2 percent below its level in Q4 2019, before the pandemic.

But Henderson argued that as confidence recovers, double-digit savings rates and positive wage growth could change spending.

“If confidence were to take over, consumers generally have a way of generating a higher level of consumption,” said Henderson. He added: “That hope will be restored soon, although there is little certainty.”

Home prices improved, according to separate data released Friday by Nationwide. It showed that while still above the long-term average, the price-to-income ratio for first-time buyers fell to 5 at the end of last year from a peak of 5.8 in 2022. Similarly, mortgage payments for first-time buyers fell to 36 percent of their take-home pay, from a peak of 38 percent at the end of 2023.