Consumer confidence in the UK has fallen to its 11-month low as people worry about rising inflation and fuel bills, suggesting rising living costs will slow household households’ recovery.
The UK Consumer Confidence Index, a closely monitored measure of how people view personal finances and broader economic prospects, fell four points to minus 19 in January, according to research firm GfK.
This was the lowest reading since February 2021, when the country was severely blocked, and analysts expected no change from the previous month.
Joe Staten, GfK’s director of customer strategy, said that “despite some good news about easing Covid’s restrictions, consumers are clearly preparing for rising inflation, rising fuel bills and the prospect of rising interest rates.”
All components of the index deteriorated. However, the decline in consumer expectations about their personal financial situation for the coming year and the sharp decline in the proportion of people who think this is a good time to make big purchases have been particularly worrying for the UK’s pace of recovery. they are more closely related to personal expenditure patterns.
“The four-point drop in the main buying index certainly suggests that people are ready to tighten their belts,” Staten said.
Consumer spending is a major driver of the UK’s economic recovery. In the third quarter, household consumption had the largest contribution to economic growth, representing 1.2 percentage points of a 1.3% increase in gross domestic product in the quarter compared to the previous quarter.
The GfK index, based on interviews conducted between January 4 and 12, did not reflect Wednesday’s announcement to ease Covid’s restrictions. But Staten said the mood was unlikely to improve when the health emergency eased, “because it’s the tension in the cost of living that worries us now, and it will affect us for months to come.”
On Wednesday, the National Statistics Office said consumer inflation rose at the fastest annual rate in 30 years in December. Economists predict that inflation will peak in April, when Ofgem, the energy regulator, will raise the default price cap on energy tariffs.
GfK data from the ONS, released on Thursday, showed that in the first half of January, two out of three people in the UK reported that their cost of living had risen in the previous month. Nearly nine out of 10 blame rising food prices and about eight out of 10 attribute the pressure to rising energy bills.
Linda Elet, Head of Consumer Markets, Leisure and Retail at KPMG UK, said their study suggests that about a third of consumers will reduce their discretionary spending in 2022 due to rising living costs.
“The cost of living also drives those who have managed to save during the pandemic, or to keep their savings, to use them to offset costs or to be conservative about how much they are willing to spend this year.” she added.