UK Consumer Confidence Drops to -24 in October Amid Rising Living Costs

GfK's UK consumer confidence index dropped 11 percentage points to -24 in October as rising living costs put consumers under pressure. The decline was the largest outside the Covid pandemic since the Brexit referendum in 2016. The Middle East war is causing mounting economic damage in Britain.

GfK said the confidence index last recorded a monthly decline of this size in July 2016, after the referendum produced a surprise vote to leave the European Union. The index recorded its biggest decline ever in March 2020, falling 25 points shortly after Britain's first lockdown began. The government and the Bank of England have monitored the index for early economic warning signs since the early 1970s.

The October result reverses the improvement seen during the summer. GfK said optimism associated with Andy Burnham, England's strong men's World Cup performance and sunny weather had improved consumer sentiment over the summer. GfK consumer insights director Neil Bellamy said persistent living-cost pressures appeared to have displaced the early optimism following the appointment of a new UK prime minister this summer. Bellamy said unresolved regional conflicts were contributing to domestic inflation, now at 3.5%.

The Middle East war has triggered another squeeze on household living standards. Petrol and diesel prices have risen to near-record levels. Energy bills have increased before a difficult winter for households already affected by years of rising prices. Trades Union Congress analysis shows UK households have incurred almost £14,000 in additional mortgage, loan, energy and water costs on average over the past five years.

Chancellor John Healey faces pressure to support households in Healey's first budget, due on Wednesday in less than a week. Warnings suggest a typical household's energy bill could reach £2,000 a year from January. Healey has pledged to announce measures that ease household financial pressure. However, Healey has warned that the government has limited resources to intervene as the Middle East conflict drives UK borrowing costs to their highest level in decades. Official figures released on Wednesday showed inflation climbed more than expected to 3.5% last month. The same release showed a government deficit of £24.5 billion, worse than forecast. The figures underline renewed financial pressure on consumers and the chancellor.

GfK's latest figures showed consumers had become less confident about personal finances and the wider UK economy. The major purchase index declined 14 points to -22 in October. The decline suggests consumers could reduce spending during the winter to accommodate higher energy bills.

Separate CBI figures showed subdued investment intentions among manufacturers during the three months to October as cost pressures stayed high. The CBI's latest Industrial Trends Survey indicated manufacturing output is expected to become stable over the next three months. However, the survey showed business cost pressures remained elevated. CBI senior economist Cameron Martin argued that tackling living costs requires giving manufacturers scope to invest and improve productivity to sustain real wage growth. Martin said next week's budget must lower business electricity and labour costs and reform business rates to encourage investment and growth. The Treasury has been asked to comment.