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Consumer confidence plummets as Labour warned over recession fears

September 20, 2024

Keir Starmer has cautioned the British public to brace for even harsher economic and social challenges as the Labour government embarks on a mission to rebuild the country from the "rubble and ruin" left by 14 years of Conservative rule.

Consumer confidence has sharply declined amid growing concerns that Labour’s rhetoric is fuelling economic fears, raising the possibility of a downturn in Britain.

GfK’s latest consumer confidence index dropped by seven points to -20 in September, with households increasingly anxious about their personal finances and the overall economic outlook. The survey also showed a 12-point drop in expectations for the economy over the next year, with the reading plunging to -27.

Neil Bellamy of GfK attributed the fall in confidence to “the withdrawal of winter fuel payments and warnings of tough decisions ahead on tax, spending, and welfare.” Business confidence has similarly faltered, with both the Institute of Directors and the Confederation of British Industry reporting growing concerns over potential tax hikes in October’s Budget.

The fear of increased taxes has led many businesses to delay investment and hiring decisions, heightening worries that the government’s approach could push the economy into recession.

City leaders and economists have called on Chancellor Rachel Reeves to offer a more positive outlook. Sir Philip Hampton, former chairman of Royal Bank of Scotland and Sainsbury’s, warned that pessimistic political messaging risks stifling the “animal spirits” needed for economic growth. “Political leadership should remind people that innovation and change are possible, even with financial constraints,” he told The Telegraph.

Labour leader Sir Keir Starmer has acknowledged that conditions could worsen before they improve, warning of a “painful” Budget ahead. Reeves has cited a £22 billion gap in public finances, exacerbated by recent public sector pay rises.

Sir Martin Sorrell, executive chairman of S4 Capital, remarked that Labour appears to be “preparing us for significant tax increases,” contributing to uncertainty. He noted that the lack of economic stability is causing both consumer and business confidence to falter.

Households are showing more caution in their spending, with GfK’s survey indicating a sharp drop in the willingness to make large purchases. Bellamy observed that consumers are “retrenching,” focusing on protecting their families amid growing economic uncertainty.

The impact has been felt most acutely among older generations, particularly following the cancellation of the winter fuel payment, a move that has heightened concerns among pensioners about the future.

Economists, including Jagjit Singh Chadha from the National Institute of Economic and Social Research, have criticised Labour’s messaging. Chadha commented, “What we need is a statement of confidence from the Government, not constant warnings of hardship.”

Despite falling inflation and interest rates, which should typically boost household optimism, Andrew Wishart, senior UK economist at Berenberg, suggested that Labour’s tone ahead of the Budget is weighing heavily on confidence.