UK consumer confidence has fallen to its lowest level in 11 months as people worry about rising inflation and fuel bills, suggesting rising cost of living will slow the recovery of household spending.
The UK Consumer Confidence Index, an accurate measure of how people view their personal finances and wider economic outlook, fell four points to minus 19 in January, according to research firm GfK.
It was the lowest reading since February 2021, when the country was in a tight lock, and below analysts’ expectations of no change from the previous month.
Joe Staton, Client Strategy Director at GfK, said that “despite good news about easing Covid restrictions, consumers are clearly preparing for rising inflation, rising fuel bills and the prospect of interest rate hikes”.
All components of the index have weakened. However, the decline in consumers’ expectations about their personal financial situation for the year ahead and the sharp decline in the percentage of people who think it’s a good time to make big purchases was particularly worrying for the pace of the UK recovery. , because they are more closely linked to personal spending patterns.
“The four-point drop in the major purchasing index certainly indicates that people are ready to tighten their belts,” Staton said.
Consumer spending was a major driver of the British economic recovery. In the third quarter, household consumption made the largest contribution to economic growth, accounting for 1.2 percentage points of the 1.3 percent quarter-on-quarter expansion in gross domestic product.
The GfK index, based on interviews conducted between 4 and 12 January, does not reflect Wednesday’s announcement of the easing of Covid restrictions. But Staton said it was unlikely the mood would brighten when the health crisis subsided “because it is the pressure on the cost of living that worries us now and it will affect us for months to come”.
The Office for National Statistics reported on Wednesday that consumer inflation rose at the fastest annual rate in 30 years in December. Economists predict that inflation will peak in April when energy regulator Ofgem raises its standard energy tariff limit.
The GfK data sound with US figures published on Thursday, which showed that in the first half of January two out of three people in the UK reported that their cost of living had increased over the previous month. Nearly nine out of 10 of those who blamed rising food prices and about eight out of 10 attributed the pinch to rising energy bills.
Linda Ellett, head of consumer markets, leisure and retail at KPMG UK, said their research indicated that about one third of consumers would reduce their discretionary spending in 2022 due to rising cost of living.
“The squeezing of living costs also causes those who were able to save during the pandemic to either put on their savings, use it to offset costs, or to be conservative with how much of it they are willing to spend this year,” he said. she added.