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UK consumer confidence fell sharply in January to the lowest level in more than a year as a rise in government borrowing costs and warnings of job cuts weighed on economic sentiment.
According to new data, the GfK consumer confidence index – a measure of how people view their personal finances and the wider economic outlook – fell 5 points to minus 22, the lowest reading since the end of 2023, according to new data.
Consumer confidence provides a forward-looking measure of household spending – gloomier sentiment means people are more likely to save than make important purchases. Households built up substantial savings last year, limiting the recovery in spending, despite wage growth outpacing inflation throughout 2024.
The month-on-month fall in the GfK consumer confidence index was the biggest since September 2024, when consumers were worried about a possible tax hike in the October budget.
Neil Bellamy, director of consumer insights at NIQ GfK, pointed to a particularly sharp drop in confidence for the wider UK economy. “These figures highlight that consumers are losing confidence in the UK’s economic prospects,” he said.
The survey was conducted in the first half of January, when the cost of UK 10-year borrowing rose to its highest level since the financial crisis, threatening the government’s ability to meet its fiscal rules and raising the risk of raising more taxes.
Borrowing costs have since eased after a surprise drop in December UK inflation, but remain higher than in the autumn.
Business surveys in early January also highlighted reduced employment forecasts, driven in part by the upcoming increase in employers’ national insurance contributions, set to take effect in April.
Confidence was lower than the minus-18 forecast by economists polled by Reuters, but was in line with the expectations of Ellie Henderson, economist at investment bank Investec.
Henderson said news of rising borrowing costs and possible job losses “may have affected perceptions and expectations about the economy and household finances”.
Consumers have become “increasingly concerned about employment prospects,” said Tomasz Wieladek, chief European economist at investment firm T Rowe Price.
The GfK savings index, which is not included in the calculation of the overall confidence index, jumped 9 points to plus 30. Bellamy called the rise “unwanted” as it signaled that households were preparing for tough economic times by prioritizing savings on expenses.
The UK household savings ratio, the proportion of disposable income not being spent, was 10.1 per cent in the three months to September, well above the 2016-2019 average of 5.5, according to official statistics. Despite real wage growth for more than a year and a half, household consumption per capita remained 2.2 percent below its fourth quarter 2019 levels, before the pandemic.
But Henderson argued that when confidence recovers, double-digit savings rates and healthy wage growth could turn consumption around.
“If confidence were to increase, consumers in the aggregate have the means to unleash a higher level of consumption,” Henderson said. “This confidence is quickly recovered even though it is less certain,” she added.
Housing affordability has improved, according to separate data released Friday by Nationwide. It showed that while remaining above the long-term average, the price-to-earnings ratio for first-time buyers fell to 5 at the end of last year from a peak of 5.8 in 2022. Similarly, mortgage payments for first-time buyers fell to 36 percent of their take-home pay, from a peak of 38 percent at the end of 2023.
