Consumer confidence in the United Kingdom has fallen to its lowest level since records were recorded in 1974, due to growing concerns about the cost-of-living crisis.
Exciting concerns that Britain is heading for a recession due to pressure on family budgets, the latest monthly survey showed that consumers are now more gloomy about their prospects than during the financial crisis in 2008.
Almost all confidence indicators monitored by the survey company GfK fell in May and continued to fall sharply in April, when households were hit by record increases in energy bills after raising Ofgem’s price cap.
The UK’s main consumer confidence index, a measure of how people view their personal finances and broader economic outlook, fell by two percentage points to -40 in May, beating the previous record low of -39 set in July 2008, when the global banking system imploded.
Joe Staton, Director of Client Strategy at GfK, said: “This means that consumer confidence is now weaker than in the darkest days of the global banking crisis, Brexit’s impact on the economy or the closure of Covid.
Economists warned in April as the index dropped to -38 that such low levels were in line with the British economy falling into recession because it had closely followed UK GDP over the past five decades.
“This correlation has been robust to many economic regimes and shocks, from stagflation in the 1970s to a severe moderation and financial crisis,” said Robert Wood, a British economist at Bank of America. “Consumer confidence is important because it gives an early, reliable signal.”
Inflation in the United Kingdom rose to 9% in April, the highest level since the early 1980s, as hard-pressed families are coming under increasing pressure due to soaring energy bills, record petrol prices and rising weekly business costs.
It happens when the impact of the Russian war on Ukraine spreads through global oil and gas markets and exacerbates the sharp rise in prices after the closure.
Economists expect the historic intervention in living standards to lead to consumers tightening their belts, as soaring prices for basic items such as food, fuel and energy force them to limit further purchases. Official data show that retail sales fell more than expected in March, while industry data suggest that spending continued to continue in April, as households experienced a record 54% increase in gas and electricity bills.
Earlier this month, the Bank of England warned that the British economy was at increased risk of recession as inflation headed 10%.
GfK said its index, based on consumer inquiries about their plans to buy big tickets, had been declining every six months. Consumer pessimism was most evident in people’s views of the general economy, with an index of -63 last year and -56 next year.
Figures from the Bureau of National Statistics published on Thursday showed a weekly decline in UK credit and debit card spending by six percentage points last week and also a 10-point decline in the number of seated diners in restaurants. However, the numbers come after the beginning of the May weekend, when sales rose sharply.
The ONS said rising material and energy costs were a major problem for British companies. As many as 26% of businesses said their main concern was rising costs this month, compared with 24% in April 2022, followed by 20% who said the biggest concern was soaring energy prices.
GfK’s Joe Staton added: “Even the Bank of England is pessimistic, with Governor Andrew Bailey offering no hope of resolving inflation this week. The outlook for consumer confidence is bleak and nothing on the economic horizon in the foreseeable future shows reason for optimism. “