British household confidence in the economy has fallen for the first time in six months, according to the latest results from the GfK consumer confidence survey.
The long-term index, which dates back to the 1970s, remained unchanged at -13, slightly above the long-term average of -18 but below Citi analysts’ expectations.
The decline in optimism reflects growing concerns about the economic outlook for the year ahead. The GfK Economic Optimism Index fell by 4 points to -15, its first decline since February. Households have also become less confident about the performance of the economy over the past 12 months, a period that has been characterized by recession.
In contrast to the gloom surrounding the wider economy, households have become more positive about their personal finances for the year ahead. The GfK balance sheet index rose 3 points to +6, supported by the recent reduction in mortgage interest rates. The Bank of England’s decision on 1 August to cut its base rate from 5.25% to 5%, its first cut since March 2020, provided some relief to borrowers, with further cuts expected this year.
The survey also highlighted a significant increase in the savings index, which rose by 6 points to 33. This indicates that consumers are choosing to save rather than spend, taking advantage of higher interest rates amid economic uncertainty.
While consumer confidence remains higher than in previous years – having recovered from an all-time low of -49 in September 2022 – Joe Staton, director of client strategy at GfK, stressed that the broader economic outlook remains fragile. He noted that despite the mixed results, overall confidence numbers are significantly more positive than they were a year or two ago.
The sharp drop in consumer confidence in September 2022 coincided with the fallout from the controversial mini-budget presented by Liz Truss and Kwasi Kwarteng, which sparked financial market turmoil and sent mortgage rates soaring.