UK consumer confidence falls sharply in January

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UK consumer confidence fell to its lowest level in more than a year in January as government borrowing costs and job cut warnings weighed on economic sentiment.

The GFK consumer confidence index – a measure of how people view their personal finances and broader economic prospects – fell 5 points out of minus 22, the lowest reading since late 2023, according to new data.

Consumer confidence provides a forward-looking measure of household spending—a sense of gloom means people are more likely to save than make significant purchases. Households built up substantial savings last year, limiting the recovery in spending, with wage growth outstripping inflation through 2024.

The month-on-month drop in the GFK Consumer Confidence Index was the biggest since September 2024, as consumers worried about possible tax hikes in the October Budget.

Neil Bellamy, director of consumer insights at NIQ GFK, cited a particularly steep fall in confidence about the wider UK economy. “These figures underline that consumers are losing confidence in the UK’s economic prospects,” he said.

The survey was conducted in the first half of January, when the UK’s 10-year debt burden rose to its highest level since the financial crisis, threatening the government’s ability to cope with fiscal discipline and raising the risk of further tax rises.

B is a relief from borrowing costs Surprise drop in UK inflation in December But there are more than autumn.

Business surveys in early January also highlighted Decrease forecast decreaseDriven in part by the upcoming increase in employer national insurance contributions to come into effect in April.

Confidence was lower than the minus 18 forecast by economists polled by Reuters but in line with expectations from investment bank Investec economist Eli Henderson.

Henderson said news of rising borrowing costs and potential job losses “could have a positive impact on perceptions and expectations for the economy and household finances”.

Consumers have become “increasingly concerned about employment prospects,” said Thomas Wyladek, chief European economist at investment firm T Rowe Price.

The GFK Savings Index, which is not included in the overall confidence index calculation, jumped 9 points to plus 30. Bellamy called the increase “unwanted” because it signaled households were bracing for tough economic times, prioritizing savings over spending.

The UK household savings ratio, the proportion of disposable income that is not spent, was 10.1 per cent in the three months, above the 5.5 average for the 2016-2019 period, according to official figures. Despite more than a year and a half of real wage growth, per capita household spending was 2.2 percent below its Q4 2019 level before the pandemic.

But Henderson argued that when confidence recovers, double-digit savings rates and healthy wage growth could offset spending.

“If confidence is adopted, there are ways to unlock higher levels of overall consumer spending,” Henderson says. “This confidence will soon recover although less certain,” he added.

Housing affordability improved, according to separate data released nationwide on Friday. It showed that while above the long-term average, the price-to-earnings ratio for first-time buyers fell to 5.8 in 2022 from a peak of 5.8 at the end of last year. The percentage of people taking their take-home pay will peak at 38 percent by the end of 2023.