Consumer confidence records biggest non-pandemic fall since 2016

Consumer confidence in the UK fell by 11 points in October, the biggest monthly drop outside the pandemic era since the 2016 EU referendum, according to GfK’s long-running household survey. GfK’s overall sentiment index dropped to -24 from -13 in September, its lowest level since the aftermath of the US-Iran conflict in April. The plunge completely reverses the gradual gains in optimism GfK recorded over the summer.

Key figures

• Consumer confidence fell by 11 points in October, the biggest monthly drop outside the pandemic era since the 2016 EU referendum.
• GfK’s overall sentiment index dropped to -24 from -13 in September, its lowest level since the aftermath of the US-Iran conflict in April.
• The plunge completely reverses the gradual gains in optimism GfK recorded over the summer.
• Expectations for the general economy and households’ intentions to make major purchases were the biggest drags, with both falling 14 points.
• Retail sales volumes fell by 0.4 per cent in September, after a 0.7 per cent rise in August.
• Consumer price inflation rose to 3.5 per cent in September from 3.1 per cent.
• Unemployment ticked down to 4.7 per cent, the lowest rate so far this year.
• The British Retail Consortium reported that its monthly sentiment measures also fell six points in October.

What GfK found

Neil Bellamy, a director at GfK, called October’s fall extraordinary and said the findings are especially damaging given the government’s stated priority of driving economic growth. The survey was carried out in the two weeks leading up to October 14. Bellamy said no single major event triggered the downturn. Instead, households have grown more pessimistic about their own finances and the wider economy because of relentless cost of living pressures, compounded by unresolved regional conflicts abroad that continue to feed domestic inflation. He warned that the speed of the deterioration is deeply alarming for policymakers and businesses alike.

Households also reported a marked decline in optimism about their personal finances, both over the past year and the next 12 months.

Spending, inflation and the labour market

The figures arrive just days before Chancellor John Healey delivers his first budget on October 28. Business and consumer confidence had rebounded steadily after the government took office in July, and the UK economy has been one of the best performers in the G7 this year. Recent survey indicators have turned sharply negative, though.

Consumer sentiment surveys don’t always translate directly into spending, but official figures from the Office for National Statistics show retail sales volumes fell by 0.4 per cent in September, after a 0.7 per cent rise in August. The ONS said online clothing retailers reported weaker sales of their autumn and winter ranges, largely because unseasonably warm weather kept shoppers away from seasonal clothing, while supermarket sales also declined. Separate ONS data released this week showed inflation driven mainly by lingering energy costs. The labour market has held up slightly better than expected.

Business pressures and the budget

Even so, nearly three-quarters of firms reported difficulty recruiting staff in the third quarter, according to a British Chambers of Commerce survey of more than 4,300 businesses. Problems were most pronounced in construction, where nearly eight in ten companies said they faced severe challenges taking on workers. A West Midlands manufacturer surveyed by the BCC said labour costs keep rising while recruitment and retention remain very difficult, requiring continuous and costly investment in developing staff.

In response, Healey has promised to lower the cost of doing business and support entrepreneurs at the budget, hinting at measures such as energy price relief and regulatory cuts. He told the media he wants to be a chancellor who backs businesses in Britain that are making a profit, as well as the entrepreneurs who challenge the status quo, develop new ideas and work through difficult headwinds.

What industry bodies are asking for

• The Confederation of British Industry and the British Chambers of Commerce have urged the government to go further by reversing the earlier increase in employers’ national insurance contributions, which would lower hiring costs, particularly for younger workers.
• The CBI has specifically called for the employer threshold to rise from £5,000 to £6,000.
• Patrick Milnes, head of people and work at the BCC, said cutting national insurance contributions for employees under 25 would significantly lower the cost of taking on young people, help tackle youth unemployment and give businesses more confidence to invest in skills.

Milnes added that the chancellor must use his statement to give firms breathing space and remove persistent barriers to hiring. Analysts will be watching closely to see how the budget addresses both consumer pessimism and business costs.