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UK consumer confidence is rebounding after falling ahead of the Budget, according to data released on Friday, with economists attributing the shift to lower interest rates, rising wages and reduced concerns over tax rises.
The GfK consumer confidence index — a measure of how people view their personal finances and broader economic prospects — rose three points to minus 18 in November, figures released on Friday showed.
This follows an eight-point decline over September and October when consumers grew anxious over the “painful” choices chancellor Rachel Reeves said she would be forced to announce in the Budget on October 30.
Analysts suggested the absence of some drastic tax-raising measures in Reeves’ statement had helped restore confidence. This “will have reassured consumers,” said Sandra Horsfield, an economist at the wealth management group Investec.
The chancellor delivered large increases in spending, tax and borrowing. However, an expected extension of income tax thresholds, which would have pushed millions of workers into higher tax bands, was not announced.
The Budget did not change the exemption for pension contributions but did increase employers’ national insurance payments.
Raising the national living wage by 6.7 per cent from April, with larger increases for younger workers, “may have cheered some workers, as could last week’s news of a further interest rate cut by the Bank of England”, said Horsfield.
The BoE cut interest rates for the second time this year to 4.75 per cent in November, helping mortgage rates to come down from their peak in the summer of 2023.
Wages have also continued to rise more than inflation, helping consumers recover some of the hit from the fast growth in prices over the past three years.
Neil Bellamy, consumer insights director at GfK, said: “There was evidence of nervousness in recent months as consumers contemplated the potentially worrying impact of the Budget at home and even the implications of the US presidential election.
“But we have moved past those events now,” he added.
Bellamy highlighted a large five-point jump in people’s willingness to make big purchases, which could signal higher spending over the Black Friday sales holiday on November 29 and the Christmas period.
Linda Ellett, UK head of consumer, retail and leisure at the consultancy KPMG, said early indications were “positive” for Black Friday and Cyber Monday, an annual shopping event that focuses on online sales.
“Retailers will be hoping for a release of pent-up spending demand, including on Christmas gifts, as we head into the golden quarter for the sector,” she added.
However, many consumers are still under financial pressure. Inflation rose more than expected to 2.3 per cent in October, cementing expectations that the BoE will not cut interest rates again until 2025.
Meanwhile, despite falling back from their peak, mortgage rates and rent growth are still historically elevated.
Bellamy warned it was “too early to expect significant further improvements in the consumer mood”.
“Inflation has yet to be tamed, people are still feeling acute cost of living pressures, and it will take time for the UK’s new government to deliver on its promise of ‘change’,” he said.
