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Household confidence in UK economy wanes after six months of growth

August 23, 2024

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UK household confidence in the economy has dipped for the first time in six months, according to the latest findings from the GfK consumer confidence survey.

The long-running index, which dates back to the 1970s, remained unchanged at -13, a figure slightly above the long-term average of -18 but below City analysts’ expectations.

This decline in optimism reflects mounting concerns about the economic outlook for the next year. GfK’s economic optimism index fell by 4 points to -15, marking its first decline since February. Households are also less assured about the economy’s performance over the past 12 months, a period marked by a recession.

In contrast to the gloom surrounding the broader economy, households have become more positive about their personal finances for the year ahead. The GfK budget index rose by 3 points to +6, buoyed by a recent reduction in mortgage interest rates. The Bank of England’s decision on August 1 to cut the base rate from 5.25 per cent to 5 per cent, the first reduction since March 2020, has provided some relief to borrowers, with expectations of further cuts this year.

The survey also highlighted a significant increase in the savings index, which climbed 6 points to 33. This suggests that consumers are choosing to save rather than spend, capitalising on higher interest rates amid economic uncertainty.

While consumer confidence remains higher than in previous years—having recovered from its record low of -49 in September 2022—GfK’s client strategy director, Joe Staton, emphasised that the broader economic outlook remains precarious. He noted that despite the mixed results, the overall confidence figures are considerably more positive compared to a year or two ago.

The sharp decline in consumer confidence in September 2022 coincided with the aftermath of the controversial mini-budget presented by Liz Truss and Kwasi Kwarteng, which triggered financial market turmoil and drove mortgage rates higher.