Consumer confidence in the UK took a sharp decrease in July, undoing several months of progress, as rising inflation and high interest rates began to impact spending, according to a recent survey.
The consumer-confidence index compiled by GfK, a leading consumer-research firm, fell by six points to reach minus 30 this month, compared to minus 24 in June. This decline was worse than the economists’ expectation of minus 26, as reported by a Wall Street Journal poll.
All aspects of the survey, including respondents’ views on their personal financial situation and the broader economy for the upcoming year, showed lower figures compared to June.
This drop in consumer sentiment puts an end to the resilience demonstrated earlier in the year, when confidence steadily improved from the all-time lows seen in the previous year. Despite facing inflationary pressures that squeezed purchasing power, and with both homeowners and renters feeling the impact of high interest rates, Joe Staton, GfK’s Client Strategy Director, expressed that this recent decline will not be easily reversed.
Staton emphasized, “The recent fall in headline inflation will do little to improve the financial mood. Consumers need to see falling prices and interest rates before that happens.”
Consumers Pulling Back from Spending Amidst Economic Uncertainty
By Joshua Kirby
Consumers are expected to further cut back on spending as they struggle to make ends meet, leading to a potential disappearance of this year’s gains in confidence, according to industry expert, Staton.
Worsening Economic Outlook Leads to Reduced Confidence
One concerning metric that has experienced a sharp decline is consumers’ expectations for the general economic situation in the upcoming year. This downward trend suggests a challenging scenario for retailers as consumers become more cautious about their spending habits amidst a deteriorating economy.
Inflation Declines, But Interest Rates Expected to Remain High
Contrary to the declining inflation rate in the UK, dropping to 7.9% in June, it is anticipated that interest rates will continue to remain high in the short term. The Bank of England is likely to raise its key rate at the next month’s meeting, although the improved inflation figures might provide some flexibility in limiting the extent of the hike.
Market analyst, Jamie Dutta at Vantage, notes that while high wage growth could potentially ease inflation, it may still pose limitations on the pace at which inflation decreases.
