A major survey indicates that UK consumer confidence experienced a slight decline this month, raising concerns about the Labour Party's first budget, which is perceived to have pushed the UK into an American-style "atmosphere recession."
The consumer confidence monthly index from research firm GfK fell by 1 point to negative 21 in October, as households became more pessimistic about the overall economic outlook despite improvements in personal finances. The data confirmed a significant drop from last month's survey, influenced by speculations about Chancellor Reeves's tax and spending plans that affected confidence.
Neil Bellamy, GfK's Director of Consumer Insights, stated: "As the budget report approaches, consumer sentiment is low despite a decrease in the overall inflation rate. This month's consumer confidence barometer paints a picture of people holding their breath in anticipation of October 30th."
Rumors of significant tax increases have caused panic among UK consumers.
Although actual economic activity indicators show a robust economy, the public's negative perception of the economy is similar to the so-called "atmosphere recession" in the United States.
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While the UK's situation with slow economic growth is somewhat different, consumers have also been hit by inflation. Earlier this year, the UK's economic recovery was unexpectedly strong, but Prime Minister Stammer's overwhelming victory in the election paved the way for Reeves's spending review and budget warnings.
The UK's main inflation rate fell to 1.7% in September, the first time it has dropped below the Bank of England's 2% target in over three years. Traders anticipate that, influenced by this data, the Bank of England will cut interest rates by 25 basis points next month.
However, data released by PwC earlier this week showed that consumer confidence fell to its lowest level in 2024 at the end of September. The survey indicated that household financial conditions have weakened since the summer, with over 70% of respondents planning to cut spending in the short term, and the number of consumers expecting to reduce spending on Christmas gifts exceeds those willing to increase spending.
Lisa Hooker, head of PwC's consumer markets industry, said: "The typical honeymoon period after the election disappeared quickly, replaced by unease, especially concerning the upcoming budget. We are seeing the impact of the 'atmosphere recession' in the UK."
Data shows that the Labour Party's emphasis on the budget bringing investment has had little effect on reversing the downward trend in confidence. A survey by S&P Global indicates that private companies are still delaying large-scale investments in October. Business confidence has fallen to its lowest level in nearly a year, with executives in a "wait-and-see" state regarding the budget.GfK's main purchasing index saw a slight improvement in October, suggesting that some relief measures may be emerging. Official data indicates that despite an unexpected increase in UK retail sales last month, attributed to consumers buying more clothing and new iPhones, households remain reluctant to purchase big-ticket items and have cut back on food expenditures.
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