Consumer confidence rises ahead of Labor’s first Budget as concerns over tax hikes grow
Consumer confidence in the UK fell in October, with pessimism about the upcoming budget outweighing optimism from falling inflation, according to GfK’s latest consumer confidence index.
The index fell one point to 21, marking its lowest reading since March and underscoring the challenges the Labor government has faced in boosting economic optimism since coming to power in July.
The results of the GfK survey suggest that households are facing major financial changes as Chancellor Rachel Reeves prepares her first Budget, which is expected to include around £40 billion in tax increases. Potential increases include adding employers’ pension contributions to National Insurance and raising capital gains tax, measures that have fueled consumer concern.
“With the Budget statement approaching, consumers are in a depressed mood despite the fall in inflation,” said Neil Bellamy, GfK’s director of consumer information. The Labor government’s expected tax hikes and overall fiscal tightening appear to have overshadowed recent developments in inflation and GDP growth forecasts.
Economic and personal worries are mounting
The general economic condition index, which measures confidence in the economy over the past year, fell by one point to 28. This decline reflects consumers’ unease about the performance of the country’s economy despite encouraging signs, such as the International Monetary Fund’s revision of UK GDP growth from 0.7% to 1.1% per year.
Inflation eased to 1.7% in September from 2.2% in August, its lowest level in three years, raising hopes that the Bank of England will cut interest rates by 25 basis points in November and December. Lower interest rates generally boost consumer confidence as they lower borrowing costs and ease financial pressures.
Consumers are cautious about spending money but open to future purchases
GfK’s main purchasing index, which measures the willingness to buy essential items, rose two points to -21, suggesting that demand for big-ticket items such as housing and cars could increase if interest rates fall. In contrast, the savings index rose by four points to +27, indicating that consumers remain cautious in their spending, preferring to save amid economic uncertainty.
Retail sales have stagnated since the pandemic, with consumers showing a greater tendency to save, according to data from the Office for National Statistics (ONS). However, the positive change in the main shopping list suggests that some households may be prepared to spend if economic conditions improve.
