Consumer confidence in the UK has fallen to its lowest level since registration began in 1974 amid rising concerns about the cost of living. Fears that Britain is heading into a recession due to tight household budgets have shown that consumers are now more gloomy about their prospects than during the 2008 financial crisis.
Nearly all of the confidence measures taken by pollster GfK declined in May, continuing their steep declines since April when households were hit by a record rise in electricity bills following Ofgem's price cap hike.
The UK Consumer Confidence Index, which measures how people view their personal finances and broader economic outlook, fell two percentage points to -40 in May, breaking the previous record low of -39 in July 2008, when the global banking system collapsed.
Joe Staton, GfK's director of client strategy, said: "This means consumer confidence is weaker now than it was in the darkest days of the global banking crisis, Brexit's impact on the economy or the Covid shutdown."
Economists warned in April, when the index fell to -38, that such a low reading was in line with the UK economy sliding into recession as it has closely followed the UK's GDP for the past five decades. “This correlation has been robust to many economic regimes and shocks, from the stagflation of the 1970s to great moderation and the financial crisis,” said Robert Wood, a UK economist at Bank of America. "Consumer trust is important because it provides an early and reliable signal."
Inflation in the UK rose to 9% in April, the highest level since the early 1980s, as distressed households come under increasing pressure from rising electricity bills, record petrol prices and rising costs of weekly purchases. The war in Ukraine is spreading across global oil and gas markets, exacerbating post-quarantine price increases.
Economists expect a historic decline in living standards to force consumers to tighten their belts as rising prices for essentials such as food, fuel and energy force them to cut back on other purchases. Official data shows retail sales fell more than expected in March, while industry data shows spending continued in April as households struggled with a record 54% rise in gas and electricity bills.
Earlier this month, the Bank of England warned that the UK economy was at increased risk of recession as inflation approached 10%.
GfK said its index score, based on surveys of consumers about their plans for large purchases, has declined over the past six months. Consumer pessimism was most visible in people's perceptions of the economy as a whole, with the index showing -63 last year and -56 next year.
Data from the Office for National Statistics released on Thursday showed a weekly drop of six percentage points in UK credit and debit card spending last week, as well as a 10% drop in restaurant seating. However, the numbers come after the holiday weekend in early May, when sales skyrocketed.
The ONS said rising material and energy costs are the biggest challenges for UK businesses. A whopping 26% of companies said rising costs were their top concern this month, up from 24% in April 2022, and 20% said rising energy prices were their top concern.
GfK's Joe Staton added: “Even the Bank of England is pessimistic and Governor Andrew Bailey is showing no hope of fighting inflation this week. The outlook for consumer confidence is bleak and nothing on the economic horizon gives cause for near-term optimism."
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