Brits have finally sobered up to the damaging impact high inflation and the Bank of England’s interest rate hikes to tame it is having on their finances, a closely watched survey out today shows.
Consumer confidence has dropped for the first time since January, down six points to minus 30 in July, according to research from GfK which dates back to the 1970s.
It was the biggest drop since April last year when confidence fell seven points.
July’s fall reverses a long winning streak for the optimism index, which had pushed it up to minus 24 in June from minus 45 in January.
That rise was a shock as it came amid double-digit inflation, tax rises and the Bank’s rate hikes to cool price growth.
Low unemployment and government support with energy bills and higher benefit payments is likely to have supported optimism.
“Reality has started to bite,” Joe Staton, client strategy director at GfK, said.
The UK economy has come under renewed pressure in recent weeks, mainly emanating from spiralling mortgage rates driven by fears about high inflation embedding in the country. Swap rates, which banks used to price their mortgages, have risen quickly.
Confidence is finally ebbing
Home loan costs have skyrocketed to their highest level in 15 years, up to 6.7 per cent on 2-year deals and just under six per cent on 5-year contracts.
Tighter mortgage market conditions have sparked warnings from the Bank of England that nearly 1m homeowners will be paying £500 more a month in repayments by the end of 2026, prompting economists to re-table their recession forecasts.
A bleaker economic outlook led overall confidence lower. Consumer confidence in the economy over the coming year fell eight points to minus 33, GfK said.
“There are clear concerns for the coming year for our personal finances and for the wider UK economy, with these measures down six and eight points, respectively,” Staton added.
Easing living costs has raised hopes the Bank will opt for a smaller rate rise of 25 basis points at its next meeting on 3 August and lift them to a lower peak of 5.75 per cent.
Mortgage providers have already responded to a flatter rate path by cutting rates for the first time since May.