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UK consumer confidence fell sharply in January to its lowest level in more than a year, as a sharp rise in government borrowing costs and warnings of job cuts weighed on economic sentiment.
The GfK Consumer Confidence Index – a measure of how people view their personal finances and broader economic prospects – fell by 5 points to minus 22, the lowest reading since the end of 2023, according to new data.
Consumer confidence provides a forward-looking measure of household spending – more pessimistic sentiment means people are more likely to save rather than make large purchases. Households built up significant savings last year, limiting the recovery in spending, although wage growth will outpace inflation throughout 2024.
The monthly decline in the GfK Consumer Confidence Index was the largest since September 2024, when consumers were concerned about potential tax rises in the October Budget.
Neil Bellamy, director of consumer insights at NIQ GfK, noted a particularly sharp decline in confidence about the wider UK economy. “These figures confirm that consumers are losing confidence in the UK’s economic prospects,” he said.
The survey was conducted in the first half of January, when the UK's 10-year borrowing cost rose to the highest level since the financial crisis, threatening the government's ability to meet its fiscal rules and raising the risk of further tax rises.
Borrowing costs have fallen since then after a A surprise drop in UK inflation in December But it remains higher than in the fall.
It also highlighted business surveys in early January Decreased employment expectationsdriven in part by the upcoming increase in employers' National Insurance contributions, which is due to come into effect in April.
Confidence was lower than the expectations of economists polled by Reuters, at minus 18, but it was in line with the expectations of Eli Henderson, an economist at the investment bank Investec.
News of rising borrowing costs and potential job losses “may have negatively impacted perceptions and expectations regarding the economy and household finances”, Henderson said.
Consumers are becoming “increasingly concerned about job prospects,” said Thomas Vieladek, chief European economist at investment firm T. Rowe Price.
The GfK Savings Index, which is not factored into the overall confidence index, jumped 9 points to plus 30. Bellamy called the increase “unwelcome” because it indicates that households are preparing for tough economic times by prioritizing savings over spending.
The UK household saving ratio, the proportion of disposable income that is not spent, was 10.1 per cent in the three months to September, well above the average of 5.5 in 2016-19, according to official statistics. Despite real wages rising for more than a year and a half, per capita household consumption remained 2.2% below its levels in the last quarter of 2019, before the pandemic.
But Henderson argued that when confidence recovers, savings rates above 10% and healthy wage growth could transform consumption.
“If confidence rises, consumers generally have the means to unleash a higher level of consumption,” Henderson said. “This confidence will soon recover, although it is less certain,” she added.
Housing affordability has improved, according to separate data published Friday by Nationwide. It showed that, while remaining above the long-term average, the price-to-earnings ratio for first-time buyers fell to 5 at the end of last year from a peak of 5.8 in 2022. Likewise, mortgage payments for first-time buyers fell to 36. percent of their take-home pay, from a peak of 38 percent at the end of 2023.
