UK consumer confidence tumbles as households brace for ‘painful’ budget – business live

Newsflash: UK retail sales have jumped last month, despite the slump in consumer confidence.

The Office for National Statistics has reported that the volume of goods bought in August rose by 1%, following a 0.7% rise in July.

Some supermarkets and clothing retailers reported a boost because of warmer weather and end-of-season sales, the ONS says.

Sales rose fastest at textile, clothing and footware stores, followed by food outlets, in August.

ONS chief economist Grant Fitzner says:

“Retail sales rose in August as warmer weather and end of season promotions helped to boost sales, most notably for clothing and food shops. Supermarkets, in particular, contributed to the largest annual rise for food sales since the summer of 2021.

“Looking at the broader picture, retail sales have also increased across the three month and annual period, following strong growth from online retailers. However, sales overall remain slightly below their pre-pandemic level.”

Veteran retailer Justin King agrees that budget fears are responsible for the plunge in consumer confidence this month.

King, the former CEO of Sainsbury’s, told Radio 4’s Today programme:

“I think it probably is, actually.

The trend line [in consumer confidence’ has been positive for a while.

That’s because the reality for most people has been positive for a while.

King points out that wage settlements have been running ahead of inflation this year (meaning real wages are rising), and that household budgets have largely absorbed the shock of the cost of living crisis.

It felt like things were getting a little better, but obviously we’ve had this backdrop of bad news.

King adds, though, that there needs to be a “reset” after the general election.

I think they’d argue it’s a step backwards before the step forward they intend to take.

Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.

Fears of a ‘painful budget’ next month have knocked morale among UK consumers – a bad sign for the economy.

The latest poll of UK consumer confidence has fallen sharply this month, with optimism over people’s personal finances, their purchase intentions, and the state of the economy all sharply lower than in August.

The index, published by data provider GfK, has dropped to -20 this month, down from -13 in August.

Consumer confidence had been improving as the economy grew robustly in the first half of this year and inflation dropped.

But September’s large drop has almost wiped out the recovery in confidence seen since this spring.

The drop follows repeated warnings that next month’s budget will include tax cuts to fix the public finances, following the unpopular decision to means-test the winter fuel payments for pensioners.

Neil Bellamy, consumer insights director at GfK, says the forward-looking indicators which feed into the index have dropped notably:

Bellamy explains:

All five measures are down but there are major corrections in the outlook for our personal financial situation for the next 12 months (down nine points), our views on the general economy for the coming year (down 12 points), and the major purchase index (down ten points).

These three measures are key forward-looking indicators so, despite stable inflation and the prospect of further cuts in the base interest rate, this is not encouraging news for the UK’s new government.

Strong consumer confidence matters because it underpins economic growth and is a significant driver of shoppers’ willingness to spend, Bellamy adds.

Earlier this week, DIY company Kingfisher reported weak demand for kitchens and bathrooms, as people resisted buying ‘big ticket’ items.

Bellamy adds that consumers are “nervously” awaiting Rachel Reeves’s budget statement on 30 October, saying:

Following the withdrawal of the winter fuel payments, and clear warnings of further difficult decisions to come on tax, spending and welfare, consumers are nervously awaiting the Budget decisions on 30th October.”

GfK polled just over 2,000 people, between 30 August and 13 September.

A few days before the survey began, Keir Starmer warned in a setpiece speech that the budget is “going to be painful”, and that “things are worse than we ever imagined”, after the government discovered what it calls a £22bn “black hole” in the public finances.

On the final day of its survey, Starmer hammered the point home, warned that painful decisions such as cutting winter fuel payment were necessary to fix the UK.

That message appears to have got through to consumers, even though Labour have also pledged not to raise the taxes on working people.

The agenda

• 7am BST: UK retail sales for August

• 7am BST: UK public finances for August

• 9am BST: Bank of England policymaker Catherine Mann speaks about the issue of macroeconomic adjustments after large global shocks

• 3.50pm BST: European Central Bank chief Christine Lagarde to deliver 2024 Michel Camdessus Annual Central Banking Lecture