UK consumer and business confidence are at a low that has never been witnessed during the course of this year while households and businesses are in an expectant mode ahead of a possible tax hike in the Budget set for October 30.
It stood at minus 21 in October, according to the GfK consumer confidence index, which reflects personal financial sentiments as well as current and prevailing economic conditions. That is one point lower than for September. It equals the lows recorded for February and March of this year. So, this fall means that consumers are generally less willing to spend-at least for now-as trepidation about financial futures prevails over optimism.
Neil Bellamy, consumer insights director at GfK, described the mood as “melancholy”, as consumers await some clarity on what is to be done in the area of fiscal policy. Notably, this has been driven by the stated public policy intent of the government to address an anticipated gap in funding of around £40 billion via net rises in taxation.
In a parallel development, business also slumped as a separate survey found business confidence falling in the wake of weaker output, and with the S&P Global flash UK PMI composite output index to its lowest since last April at 51.7. That will have entailed job losses for the first time this year, as big companies finally start to respond to what Chris Williamson, chief business economist at S&P Global Market Intelligence, dubbed “gloomy government rhetoric” and uncertainty over the Budget.
Chancellor Rachel Reeves has promised the public that income tax, national insurance, and VAT rates will not rise, but she is likely to extend the freeze on thresholds for personal tax beyond 2028 – a move that could be seen as a stealth tax measure worth an extra £7bn a year. And Reeves hasn’t ruled out employers’ national insurance contributions going up either.
There, she voiced a vision of investment, not stagnation, in a recent article in the Financial Times. She reaffirmed her “commitment to continuing to invest in the United Kingdom,” hoping to restyle an economy that has witnessed 14 consecutive years of dismal growth. More importantly, she said she would reform the fiscal rules for the UK to create about £20 billion more in investment per annum by borrowing more, in an effort to avoid cuts in public sector investment.
As housing markets keep seeing positive trends, inflation and mortgage rates have dropped lately; yet, consumer and business confidence keeps sliding downward. In fact, it seems uncertainty regarding the probable tax policies of the government dominates these positive macroeconomic figures. Statistics announced last month reveal that weakness in household consumption continues as consumers are quite anxious about saving money.
The GfK index showed that household judgment on the economy plummeted 5 points, to minus 42, the lowest since March. Inflation declined to 1.7% in September, the lowest rate for over three years, but it would seem that concerns over public services overshadow fears over the tax level with less than half of respondents now satisfied with the NHS, a record low.
