UK households’ confidence in the economy has dipped for the first time in six months. This shift is driven by growing concerns over the future economic outlook despite improvements in personal finances.
According to GfK’s most recent survey, while there is increased optimism regarding household budgets, broader economic apprehensions persist.
The long-running index, dating back to the 1970s, remained stagnant at -13, a figure slightly above the long-term average of -18 but below analysts’ expectations. This decline mirrors the growing unease about the economic prospects for the upcoming year.
GfK’s economic optimism index experienced a 4-point drop to -15, marking its first decline since February. Households have expressed reduced confidence in the economy’s performance over the past 12 months, a period marked by recession.
Despite the general gloom about the broader economy, there is a silver lining regarding personal finances. Households have become more positive about their financial situation for the year ahead.
The GfK budget index saw a 3-point increase to +6, largely due to a recent reduction in mortgage interest rates, providing some relief to borrowers.
The Bank of England’s decision on August 1 to reduce the base rate from 5.25% to 5% has had significant implications.
This move, the first reduction since March 2020, is expected to bring further cuts this year. It offers relief to borrowers and boosts confidence in managing personal finances.
The cut in rates has positively influenced the GfK budget index, reflecting an improved outlook on household budgets amidst economic uncertainty.
The survey revealed a significant rise in the savings index, which climbed 6 points to 33. This indicates a tendency among consumers to save rather than spend.
High interest rates amidst economic uncertainty have led consumers to capitalise on saving opportunities, enhancing their financial resilience.
Compared to previous years, consumer confidence remains higher, having recovered from a record low of -49 in September 2022.
Joe Staton, GfK’s client strategy director, emphasises that despite mixed results, overall confidence figures are considerably more positive compared to a year or two ago.
The sharp decline in consumer confidence in September 2022 was triggered by the aftermath of the controversial mini-budget by Liz Truss and Kwasi Kwarteng. This event caused financial market turmoil and drove mortgage rates higher.
While current confidence levels are higher than historical lows, the broader economic outlook remains precarious. This is reflected in the slight dip in the long-running index.
Households continue to express concern about the economy’s trajectory amidst ongoing financial uncertainties.
The recent dip in household confidence underscores the complex economic landscape facing the UK.
Despite positive shifts in personal finances, broader concerns about economic stability persist.
The recent data highlights the nuanced perspectives of UK households, balancing improved personal finances against broader economic concerns.
As the year progresses, these mixed sentiments will likely shape consumer behaviours and economic policies.
