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UK consumer confidence fell sharply in January to its lowest level in more than a year as a sharp rise in government borrowing costs and warnings of job cuts weighed on economic sentiment.
The GfK consumer confidence index — a measure of how people feel about their personal finances and the broader economic outlook — fell 5 points to minus 22, the lowest reading since late 2023, according to new data.
Consumer confidence provides a forward-looking measure of household spending — a gloomier mood means people are more likely to save than buy. Households built up significant savings last year, limiting the recovery in spending, despite wage growth outpacing inflation through 2024.
The monthly drop in GfK’s consumer confidence index was the biggest since September 2024, when consumers were worried about a potential tax hike in the October budget.
Neil Bellamy, director of consumer insights at NIQ GfK, noted a particularly steep fall in confidence in the wider UK economy. “These figures highlight that consumers are losing confidence in the UK’s economic outlook,” he said.
The survey was conducted in the first half of January, when the UK’s 10-year borrowing costs rose to their highest level since the financial crisis, threatening the government’s ability to meet its fiscal policy and increasing the risk of further tax hikes.
Borrowing costs have since decreased after a a surprise drop in UK inflation in December but they remain higher than in autumn.
Business surveys in early January also pointed out reduced employment forecastspartly driven by the upcoming increase in employers’ National Insurance contributions, which will take effect in April.
Confidence was lower than the minus 18 expected by economists polled by Reuters, but in line with Ellie Henderson, an economist at investment bank Investec.
Henderson said news of rising borrowing costs and potential job losses “may have taken a toll on perceptions and expectations for the economy and household finances”.
Consumers have become “increasingly concerned about employment opportunities,” 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 increase “unwelcome” as it signals that households are preparing for tough economic times by prioritizing savings over spending.
The UK household savings ratio, the proportion of disposable income not 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 more than a year and a half of real wage growth, household consumption per capita remained 2.2 percent below the level of the fourth quarter of 2019 before the pandemic.
But Henderson argued that once confidence recovers, double-digit savings rates and healthy wage growth could reverse spending.
“For confidence to increase, consumers as a whole have the means to unleash higher levels of spending,” Henderson said. “That confidence soon recovers, although it is less certain,” she added.
Housing affordability improved, according to separate data released by Nationwide on Friday. 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 repayments for first-time buyers fell to 36 percent of their take-home pay, from a peak of 38 percent at the end of 2023.
