(Bloomberg) -- UK consumer confidence edged lower this month, according to a leading survey, fueling concerns that worries about Labour’s first budget had pushed Britain into a US-style “vibecession.”
Research firm GfK’s monthly gauge of consumer confidence ticked down 1 point to minus-21 in October as households turned more downbeat about the broader economic outlook despite improving sentiment around their personal finances. The data affirms a steep decline in last month’s survey as speculation about the tax and spending plans that Chancellor of the Exchequer Rachel Reeves’ weighed on sentiment.
“As the Budget statement looms, consumers are in a despondent mood despite a fall in the headline rate of inflation,” said Neil Bellamy, consumer insights director at GfK. “This month’s Consumer Confidence Barometer paints a picture of people holding their breath to see what’s in store for them on Oct. 30.”
The negative popular perceptions of the economy even as indicators of real activity show strength has parallels with the so-called vibecession in the US. In that case, strong economic growth has failed to quiet public discontent about higher prices and borrowing costs, contributing to US Vice President Kamala Harris’ challenge convincing Americans that they’re better off than four years ago in her election against former President Donald Trump.
While the situation is different in the slow-growing UK, consumers have been similarly shocked by inflation. Britain had seen a surprisingly strong economic recovery earlier this year before Prime Minister Keir Starmer’s landslide election win paved the way for Reeves’ spending reviews and budget warnings.
The UK’s main measure of inflation fell to 1.7% in September, the first time it had fallen below the Bank of England’s 2% target in more than three years. Traders expect the British central bank to cut interest rates by a quarter of a percentage point next month on the back of such data.
Still, PwC figures published earlier this week separately showed sentiment dropping to its lowest level in 2024 at the end of September. That survey suggested household finances have weakened since the summer, with over 70% of respondents planning to cutback on spending in the short-term and consumers expecting to spend less on Christmas presents outnumbering those willing to increase their spending.
“The typical post-election honeymoon vanished quickly, to be replaced by trepidation, particularly about the upcoming budget,” said Lisa Hooker, leader of industry for consumer markets at PwC. “We are seeing the impact of ‘vibecession’ in the UK.”
The numbers show that Labour’s efforts to emphasize the investment that the budget will usher in have done little to reverse the decline in sentiment. An S&P Global survey showed private-sector companies are still postponing large investments in October. Business sentiment dropped to the lowest level in almost a year, with executives in “wait-and-see” mode ahead of both the budget and the US election.
GfK’s major purchase gauge improved slightly in October, suggesting some relief might be underway. While UK retail sales rose unexpectedly last month thanks to consumers buying more clothes and new iPhones, households remained reluctant to buy big ticket items and cut back on food spending, according to official data.
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