An inflation spike, the re-emergence of Covid-19 restrictions and looming tax hikes have combined to dampen Brits’ confidence in the year ahead, reveals a closely watched survey released today.
The erosion of household budgets by inflation climbing to a near three decade high has led to concerns about a deterioration in personal finances to sweep across the UK, according to GfK’s consumer confidence index.
Joe Staton, client strategy director at GfK, warned: “The UK’s financial pulse weakened further this January driven by concerns over personal finances and the general economic situation.”
UK consumer confidence dipped four points over the last month to minus 19 in January.
Meanwhile, households’ optimism about their personal finances over the coming year shrank three points to minus two, according to GfK.
Confidence is likely to fall further in the coming months as a combination of cost headwinds are set to culminate this spring to pinch household budgets.
A looming 1.25 percentage national insurance hike and higher energy bills will take effect in April.
Some City economists are forecasting inflation to rise above seven per cent in the same month.
The sharp pull back in confidence is likely to hit consumer spending, presenting serious downside risks to the UK’s economic recovery.
GfK’s survey suggests bets on consumers unleashing a wave of savings amassed during the pandemic are looking misplaced.
Savings intentions climbed one point over the last month to 15 in January.
However, experts are bullish about the UK’s prospects this year, buoyed by Omicron’s nascent impact on the economy. Pantheon Macroeconomics recently hiked their forecasts for GDP growth in the first quarter of this year to 0.2 per cent from zero, while data from the ONS yesterday showed card spending is recovering.
Staton warned that improvements to the economic outlook generated by the government’s decision to scrap plan B measures, including working from home guidance, and falling Covid-19 cases will be offset by inflation trending higher.
“Will the mood brighten when the latest wave of the pandemic subsides and Covid numbers improve? It seems unlikely because it’s the cost-of-living squeeze that’s worrying us now and this will affect us for months to come,” he warned.