Consumer confidence falls to historic lowest level

Britain’s longest-running gauge of consumer confidence, the GfK survey, fell to its lowest since records began in 1974, suggesting that consumers are now gloomier about their prospects than they were during the 2008 financial crisis.

As per data released by research company GfK in a report published today (20), UK consumer confidence index fell 2 percentage points to minus 40 in May, its lowest since records began in 1974.

The survey measures how people view the state of their personal finances and wider economic prospects. Experts predict that the historic hit to living standards will make consumers tighten their belts as prices for essentials such as food, fuel and energy continue to soar.

Joe Staton, client strategy director at GfK, said, “Consumer confidence is now weaker than in the darkest days of the global banking crisis, the impact of Brexit on the economy, or the Covid shutdown.”

The fall in confidence is interlinked with soaring inflation, which reached a 40-year high of 9 per cent in April driven by rising energy prices following Russia’s invasion of Ukraine.

The fall in consumer confidence is the first sign that the UK economy is experiencing a protracted period of economic stagnation coupled with historically high inflation, a combination usually referred to as stagflation.

Throughout last year, consumer spending supported the UK’s pandemic recovery but record-low consumer confidence has raised the risk of recession, defined as two consecutive quarters of falling output.

Samuel Tombs, economist at Pantheon Macroeconomics, noted that when the GfK consumer confidence index had in the past fallen below minus 30, “households’ spending dropped” and “recession ensued”. 

The UK’s economic recovery had already stalled in February and March and the Bank of England expects the economy to alternate between near-stagnation and contraction over the next two years with economic output unlikely to change significantly before the first quarter of 2024.

The Bank of England thinks inflation will climb above 10 percent later this year.