A relentless cost of living crunch, the prospect of a recession and stagnant wage growth has driven British pessimism to new highs, reveals a closely watched survey published today.
UK consumer confidence dropped to minus 41 points this month, down marginally from minus 40 in May, the lowest reading recorded by research firm GfK since it started the survey in the 1970s.
The figures illustrate the heavy blow the worst inflation surge in recent memory is dealing to households’ optimism about their finances and the wider UK economy.
Brits’ confidence in their personal finances over the next year has dropped to minus 28, while their assessment of the health of the UK economy has collapsed, falling 18 points compared to June last year to minus 65 points.
Fresh figures published this week revealed inflation hit another 40-year high last month, climbing to 9.1 per cent.
But, a further jump in the energy bill cap in October will hoist inflation to over 11 per cent, the Bank of England predicts.
Wages are forecast to trail living cost rises through 2022, likely triggering a spending cool down and tipping the UK into a recession.
Financial markets also think the Bank of England will hike interest rates to around three per cent by the end of the year to deal with the inflation spike. It has already sent rates to 1.25 per cent, a 13-year high.
While the central bank’s move will cool inflation, it will intensify pressure on households by raising mortgage costs and making it more expensive to borrow.
Falling living standards – when price rates outstrip income growth – has prompted railway workers to strike in a bid to secure a pay rise. RMT union members have reportedly been offered a three per cent pay rise.
Transport disruption as a result of the industrial action has also knocked consumer confidence.
UK lawmakers have warned inflation-busting pay rises will entrench elevated prices in the UK economy over the long-run.
Analysts predicted confidence will erode even more as the year drags out.
“With prices rising faster than wages, and the prospect of strikes and spiralling inflation causing a summer of discontent, many will be surprised that the index has not dropped further,” Joe Staton, client strategy director at GfK, said.
“Britain faces a stark new economic reality and history shows that consumers will not hesitate to retrench and tighten their purse strings when the going gets tough,” he added.