Consumer confidence in the UK dropped by 11 points during October, marking the most significant monthly decline beyond the pandemic period since the 2016 EU referendum, as reported by GfK’s ongoing household survey. The consumer research firm’s overall index fell to -24 from -13 in September, reaching its lowest level since the aftermath of the US-Iran conflict in April. This decline reverses the gradual improvements in sentiment that GfK had observed over the summer months.
Neil Bellamy, a director at GfK, labeled October’s drop as an “extraordinary collapse”, while adding: “These are damaging findings given the government’s priority of economic growth.” The survey was conducted during the fortnight ending 14 October. Bellamy noted the downturn was not driven by a single major economic event. Instead, households became pessimistic about their finances and the economy due to “relentless cost of living pressures against an international backdrop of unresolved regional conflicts that are themselves contributing to domestic inflation”. He added: “The speed of this deterioration is alarming.”
Consumer Sentiment
According to GfK, expectations for the general economy and plans to make significant purchases in the coming months were the main contributors to the index’s decline, each dropping by 14 points. Households also reported reduced optimism regarding their personal financial situation over both the past year and the upcoming 12 months.
These findings emerge five days prior to John Healey, the chancellor, presenting his first budget on 28 October. Recent survey indicators have recently shifted negatively.
Sentiment surveys do not always directly correlate with spending behavior. The Office for National Statistics (ONS) reported that retail sales volumes decreased by 0.4 per cent in September, following a 0.7 per cent increase in August.
Economic Indicators
The ONS noted that online clothing retailers experienced reduced sales of autumn and winter collections due to unseasonably warm weather, while supermarket sales also declined. A separate ONS release this week indicated inflation rose to 3.5 per cent in September from 3.1 per cent, primarily driven by energy costs.
The labor market has slightly exceeded expectations, with unemployment falling to 4.7 per cent, the lowest rate recorded this year. Despite the stronger employment environment, nearly 75 per cent of firms reported difficulties in hiring during the third quarter, according to a survey of over 4,300 businesses conducted by the British Chambers of Commerce (BCC).
Government Response
Healey has pledged to reduce the “cost of business” and support “bloody-minded entrepreneurs” through the upcoming budget, suggesting measures like energy price relief and regulatory cuts. He told media: “I want to be a chancellor who backs business in Britain making a profit and those entrepreneurs who, in the end, are the ones who challenge the status quo, come up with innovative ideas and are trying, some of them through sheer bloody-mindedness, to keep going through these sorts of pressures.”
Industry groups such as the CBI and the BCC have urged the government to reverse the rise in employers’ national insurance contributions (NICs) made by Rachel Reeves in 2024, to bring down hiring costs, particularly for younger workers. The CBI has separately called for the employer threshold to rise from £5,000 to £6,000. Patrick Milnes, head of people and work at the BCC, said that cutting NICs for under-25s “would lower the cost of taking on young people, help tackle youth unemployment and give businesses greater confidence to invest in skills”. He added: “The chancellor must use his statement next Wednesday to give firms much-needed breathing space and remove hiring barriers.”