Consumer confidence dips ahead of Labour’s first Budget as concerns over tax rises grow

UK consumer confidence fell in October, as pessimism about the upcoming Budget outweighed optimism caused by lower inflation, according to the latest GfK Consumer Confidence Index.

The index fell by one point to -21, recording its lowest reading since March, and highlighting the challenges the Labor government faces in boosting economic optimism since coming to power in July.

GfK survey results suggest that households are preparing to make big financial changes as Chancellor Rachel Reeves prepares her first Budget, which is expected to include around £40bn in tax rises. Potential increases include making employer pension contributions subject to National Insurance and increasing capital gains taxes, measures that have increased consumer anxiety.

“With the Budget statement looming, consumers are in a desperate mood despite the decline in headline inflation,” said Neil Bellamy, Director of Consumer Insights at GfK. The Labor government’s expected tax rises and general fiscal tightening appear to have overshadowed the recent improvement in inflation expectations and GDP growth.

Economic and personal financial concerns rise

The General Economic Situation Index, which measures confidence in the economy over the past year, fell by one point to -28. The decline reflects consumer concern about the country’s economic performance despite encouraging signs, such as the International Monetary Fund’s upward revision of UK GDP growth from 0.7% to 1.1% for this year.

Inflation fell 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 both November and December. . Interest rate cuts typically boost consumer confidence because they lower borrowing costs and ease financial pressures.

Consumers are cautious about spending but open to future purchases

GfK’s headline purchasing index, which measures the willingness to make large purchases, rose two points to -21, suggesting that demand for expensive goods such as housing and cars could rebound if interest rates fall. In contrast, the Savings Index rose four points to +27, indicating that consumers remain cautious about their spending and prefer 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, a positive change in the headline purchasing index indicates that some households may prepare to spend if economic conditions improve.