UK Consumer Confidence Plunges 11 Points as Living Costs Bite

UK consumer confidence fell by 11 percentage points in October to -24, the sharpest one-month drop outside the Covid pandemic since the 2016 Brexit vote, according to GfK. The slide lands less than a week before Chancellor John Healey delivers his first budget to the Commons on Wednesday.

GfK, whose index has been tracked by the government and the Bank of England since the early 1970s, said confidence last fell this much in a single month in July 2016, after the shock leave result in the EU referendum. The index's largest ever fall was 25 points in March 2020, just after the start of the first UK lockdown.

The October reading marks a sharp reversal from the summer. GfK said a "Burnham bounce" — along with a strong World Cup run by the men's England football team and sunny weather — had lifted consumer mood in its long-running monthly survey.

What wiped out the summer optimism?

GfK consumer insights director Neil Bellamy said: "Relentless cost-of-living pressures, against an international backdrop of unresolved regional conflicts that are themselves contributing to domestic inflation now at 3.5%, appear to have swept aside the nascent optimism we saw following the appointment of a new UK prime minister this summer."

Consumers face a fresh squeeze from the unfolding war in the Middle East. Petrol and diesel prices have surged close to record highs, and energy bills have risen ahead of what households expect to be a difficult winter after years of price increases.

Analysis by the Trades Union Congress shows UK households have paid almost £14,000 on average in additional costs for mortgages, loans, energy and water bills over the past five years.

What pressure does this put on the chancellor?

Healey is under pressure to support households amid warnings that consumer energy bills could reach £2,000 a year from January for the typical household. He has pledged to use his statement to announce "breathing space" measures to ease the pressure.

But he has also warned that the government has limited resources to intervene, as the Middle East conflict pushes UK borrowing costs to their highest level in decades.

Official figures released on Wednesday delivered a double blow. Headline inflation rose by more than expected to 3.5% last month, while the government deficit came in at a worse-than-forecast £24.5bn. The twin figures underscore that consumers face a renewed cost-of-living squeeze at the exact moment the chancellor's own finances are tightening.

Are consumers pulling back on spending?

GfK's data shows consumers grew less confident about both their personal finances and the general outlook for the British economy. The major purchase index fell 14 points to -22 in October, suggesting households could cut spending over the winter months to make room for higher energy bills.

Business signals point the same way. Separate figures from the CBI show investment intentions among manufacturing businesses were subdued in the three months to October, as cost pressures remained elevated. The lobby group's latest Industrial Trends Survey says manufacturing output is expected to stabilise over the next three months.

CBI senior economist Cameron Martin said: "If the government wants to meaningfully tackle the cost of living, it must give manufacturers the breathing space to invest and drive the productivity growth needed to sustain rising real wages." He added: "Next week's budget must deliver this by cutting business electricity costs, reducing labour costs and reforming business rates to support rather than hinder investment and growth."

The Treasury has been approached for comment. With confidence sinking, inflation overshooting and the deficit widening, Wednesday's budget now carries the weight of a household sector already bracing to retrench.