UK client confidence has dropped to its lowest stage for practically 50 years amid the cost of living crisis, in line with a survey, fuelling considerations that the economic system will slide into recession in 2022.

The UK client confidence index fell 2 proportion factors to minus 40 in Might, its lowest since data started in 1974, mentioned analysis firm GfK in a report revealed on Friday.

The survey measures how folks view the state of their private funds and wider financial prospects. Joe Staton, shopper technique director at GfK, mentioned: “Shopper confidence is now weaker than within the darkest days of the worldwide banking disaster, the influence of Brexit on the economic system, or the Covid shutdown.”

The fall in confidence mirrored hovering inflation, which reached a 40-year excessive of 9 per cent in April pushed by rising vitality costs following Russia’s invasion of Ukraine.

Linda Ellett, UK head of client markets at KPMG, mentioned that “as costs and charges rise, the flexibility of shoppers to spend is falling”.

All through final 12 months, client spending supported the UK’s pandemic restoration however record-low client confidence has raised the danger of recession, outlined as two consecutive quarters of falling output.

Samuel Tombs, economist at Pantheon Macroeconomics, famous that when the GfK client confidence index had up to now fallen beneath minus 30, “households’ spending dropped” and “recession ensued”. 

The UK’s financial restoration had already stalled in February and March and the Financial institution of England expects the economic system to alternate between near-stagnation and contraction over the following two years with financial output unlikely to vary considerably earlier than the primary quarter of 2024.

The autumn in client confidence is the primary signal that the UK economic system is experiencing a protracted interval of financial stagnation coupled with traditionally excessive inflation, a mix often known as stagflation.

The UK has not skilled a mixture of such diverging traits in costs and exercise for the reason that Nineteen Seventies.

Sandra Horsfield, economist at Investec, mentioned that regardless of family financial savings increase over the pandemic, a squeeze on discretionary spending regarded “inevitable”. She added this was very true for poorer households, which have fewer financial savings and have a tendency to allocate a bigger share of revenue to meals and vitality.

The GfK knowledge, based mostly on interviews carried out within the first half of Might, confirmed that the proportion of individuals selecting to not make huge buy choices rose, as confidence ranges fell greater than the minus 39 forecast by economists polled by Reuters. Perceptions of private funds and the broader economic system additionally deteriorated.

Waning client confidence was mirrored throughout a number of sectors. Procuring and leisure outings have been down 11 per cent in contrast with pre-pandemic ranges, in line with Google Mobility knowledge.

Within the second week of Might, credit score and debit card spending on discretionary objects, resembling clothes and furnishings, was down 14 per cent from pre-pandemic ranges, in line with BoE knowledge.

A survey by the Workplace for Nationwide Statistics confirmed that within the first half of Might greater than half of the respondents had lower their non-essential spending and vitality use because of rising living costs.

Early within the week, official knowledge confirmed that UK unemployment fell to the lowest rate in nearly 50 years and extra job vacancies have been out there than job seekers for the primary time on document. The tight labour market provides to the danger of upper and extra persistent inflation as rising costs develop into embedded in wage negotiations and within the wider economic system.

Because of this, markets are pricing the Financial institution of England to raise rates to 2 per cent by the tip of the 12 months from its present 1 per cent. This might imply larger borrowing prices for companies and households on high of hovering costs.

“The outlook for client confidence is gloomy and nothing on the financial horizon reveals a motive for optimism any time quickly,” mentioned Staton of GfK.

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