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UK consumer confidence plunges as deepening pessimism bolstered by rising prices takes hold

By Nicole Willing

Edited by Jekaterina Drozdovica

08:44, 11 October 2022

Two shoppers pass by a rack of clothes at a market
UK consumer confidence plunges to record-lows. Photo: Daniel Harvey Gonzalez / Gettyimages

UK consumer confidence is at an all-time low as a growing cost of living crisis drives up energy costs, food prices and mortgage payments. Consumers are expressing serious concerns about their personal finances and the outlook for the economy over the next year.

How is the consumer confidence in the UK measured and what does it indicate about the prospects for the UK economy over the next year?

What is consumer confidence?

Consumer confidence – the way consumers feel about the state of a country’s economy – is an important indicator of economic sentiment. It is typically measured by a Consumer Confidence Index to provide quantifiable data.

A consumer confidence index measures how optimistic consumers are about their personal finances as well as the overall state of the economy. When consumers feel confident, they are more likely to spend money on goods and services. When they feel less confident, they are more likely to cut their spending to save money. As a result, there is a correlation between economic growth and consumer confidence, with confidence falling when economies contract. 

In the UK, data and analytics provider Growth from Knowledge (GfK) has tracked consumer confidence on a monthly basis since 1974. GfK surveys individuals over 16 in the first half of every month, with quotas based on age, sex, region and social class to take a representative sample of the UK population. GfK consumer confidence in the UK is reported along with monthly retail sales and inflation figures to provide a view on the state of the nation’s economy.

The GfK Consumer Confidence Index represents an overall score from five measures: 

  • consumers’ personal financial situation over the last 12 months

  • consumers’ personal financial situation over the next 12 months

  • the general economic situation over the last 12 months

  • the general economic situation over the next 12 months

  • major purchase index

GfK also measures a savings index although it is not included in the overall score.

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UK consumer confidence plunges as cost pressures bite

The most recent UK consumer confidence index data released on 29 September showed that confidence  dropped by five points in September to a new record low of -49. The personal finance and general economic measures were down from August, while the major purchase index was flat. Joe Staton, Client Strategy Director at GfK, noted:

“There have been new lows in four out of the last five months and all measures are once again severely depressed. Especially worrying are the two key future-facing indicators on personal finances in the coming year (down nine points to -40) and the economy in the next 12 months (down eight to -68).

“These numbers are where many forecasters look for signs of economic optimism among consumers and the results deliver very bad news in that respect.”

UK consumer confidence has fallen sharply in the past year. The GfK consumer confidence index rebounded in the summer of 2021 following a sharp drop in March 2020 at the start of Covid-19 lockdowns. 

But GfK’s chart of UK confidence history shows that the overall index has fallen from -13 in September 2021 to -49 last month. The index measuring changes in consumers’ outlook for their personal finances over the next year dropped from 5 a year ago and -31 in August to -40 in September – the largest drop among the five measures. As consumers struggle with rising living costs, the savings index dropped to 11, down from 18 in August and 22 a year earlier.

UK consumer confidence dropped to record low in August 2022

Analysts had expected a small rise in UK consumer confidence after the government announced a £150bn package to freeze household energy bills. But, with the Bank of England (BoE) raising interest rates seven times since December 2021 to their highest level since 2008, borrowing costs are rising, increasing the cost of mortgages and other debt.

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The Bank of England said on 23 September that, including the cap on energy bills, it expected inflation to peak at 11% in October 2022, up from a near 40-year high of 9.9%, “and then remain above 10% for a few months before starting to come down. Even though the rate of inflation will slow down, the prices of some things may stay at a high level compared with the past.”

As a net energy importer, the UK has seen energy prices soar as the Russian invasion of Ukraine has driven up natural gas prices. European pipeline gas prices hit record highs over the summer and liquified natural gas is in high demand globally. The conflict has also increased food prices, the BoE noted.

There is also pressure on prices from developments in the UK. Businesses are charging more for their goods and services because of the higher costs they face. There are more job vacancies than there are people to fill them, as fewer people are seeking work following the pandemic. That means that employers are having to offer higher wages to attract job applicants.

The pressure on consumer spending is also evident in the BoE’s agents survey for September. The report found that consumers are switching to cheaper products and cutting their purchases of non-essential items at food retailers, increasing the market share of discount chains. Sales of household items including furniture, electrical goods and home-improvement products continued falling.

Meanwhile, the British currency is trading at record-low levels against the US dollar, with GBP/USD exchange rate declining 18% this year as of 10 October. 

What is the future outlook for the UK consumer confidence?

Analysis by data provider TradingEconomics, as of 10 October, indicated that the UK consumer confidence is likely to remain negative into 2023 and then improve in the second half of the year. That is in line with projections for an economic recovery after a recession starting in the fourth quarter of 2022. 

The UK confidence forecast compiled by TradingEconomics suggested that the Consumer Confidence Index could rise to -35 by the end of this quarter, and then trend around 5 points in 2023 and 1 point in 2024, according to its econometric models.

Consulting firm KPMG forecast UK inflation to peak at 10.5% in 2022 as the government support limits the impact of the rising energy costs on household utility bills. The firm added: 

“ The economy is probably already in a mild recession, with growth expected to stay negative for the rest of this year. The picture for 2023 is one of stop-start growth, leading to a full year fall in GDP of 0.2% compared to 2022.”

Meanwhile, consulting firm PwC’s UK economic outlook suggested the economy was likely to remain under pressure into 2024, noting that the growth outlook for the island nation has deteriorated. The firm expected the UK GDP growth to average between 3.1% and 3.6% in 2022, followed by two years of “slow, or even negative GDP growth.” PwC said:

“Our model predicts the UK to enter a recession as early as this year. This is largely due to surges in inflation as the cost of living crisis impacts all demographic groups. However, the shape of any recession is more important to businesses and policy makers than whether a recession is recorded in the national accounts.”

Consumer confidence will remain an important indicator as the UK navigates continued economic uncertainty over the next two years, pointing to how consumer spending will be affected by negative growth.

Remember that analysts’ predictions can be wrong and shouldn’t be used as a substitute for your own research. Always conduct your own due diligence before trading. And never trade money you cannot afford to lose. 

FAQs

What is the current consumer confidence in the UK?

UK consumer confidence measured by the Growth from Knowledge (GfK) was at a record low in September 2022 as consumers face a cost-of-living crisis driven by high inflation and rising interest rates.

How is UK consumer confidence measured?

The UK Consumer Confidence Index is produced by Growth from Knowledge (GfK), a data and analytics provider that has tracked consumer confidence every month since 1974.

How does consumer confidence affect the economy?

When consumers feel more confident about the state of the economy they are more likely to spend money on goods and services, driving companies’ revenue growth.

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The difference between trading assets and CFDs
The main difference between CFD trading and trading assets, such as commodities and stocks, is that you don’t own the underlying asset when you trade on a CFD.
You can still benefit if the market moves in your favour, or make a loss if it moves against you. However, with traditional trading you enter a contract to exchange the legal ownership of the individual shares or the commodities for money, and you own this until you sell it again.
CFDs are leveraged products, which means that you only need to deposit a percentage of the full value of the CFD trade in order to open a position. But with traditional trading, you buy the assets for the full amount. In the UK, there is no stamp duty on CFD trading, but there is when you buy stocks, for example.
CFDs attract overnight costs to hold the trades (unless you use 1-1 leverage), which makes them more suited to short-term trading opportunities. Stocks and commodities are more normally bought and held for longer. You might also pay a broker commission or fees when buying and selling assets direct and you’d need somewhere to store them safely.
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