Budget approach has negative impact on consumer trust
In September, the British economy showed signs of strain as personal financial situations and consumer confidence took a hit. The Consumer Confidence Index, a measure of how optimistic Britons feel about their financial future, decreased by two points to -19.
According to the British Retail Consortium, consumer confidence dropped significantly last month. The decline in interest rates on 7 August, intended to stimulate the economy, did not seem to boost consumer financial mood or divert attention from day-to-day cost issues.
Neil Bellamy, a financial analyst, commented that there's an autumnal chill in the air this month, with tax rises expected in the November Budget potentially causing further confidence to fall. He added that the decrease in interest rates did little to alleviate these concerns.
Brits' confidence in their personal finances for the next 12 months fell one point to four. This is concerning as Brits' personal financial situations also slipped to -7 in September. All measures of the Consumer Confidence Index are down in comparison to last month.
The Bank of England held interest rates due to high food and services inflation. Core food price inflation for the 12-month period increased to 5.1%, marking the fifth consecutive rise for this figure. This means that the cost of basic necessities like food and utilities continues to rise.
The governor of the Bank of England warned that "we're not out of the woods yet". Chancellor Rachel Reeves faces the challenge of finding £25bn in taxes or savings to restore her headroom, according to Deutsche Bank. Proposals for addressing the financial gap include changes to taxes on property, rental income, pensions, gambling, and inheritances.
Sentiment for the economy is sliding sharply. Expectations of the state of the overall economy worsened to -36 in September. The German federal government, led by Finance Minister Lars Klingbeil (SPD), is considering large-scale investments and new debt rather than tax increases to finance the 2025 budget; no tax hikes are explicitly planned in the recent budget decisions.
These economic challenges underscore the need for careful consideration and strategic decision-making from policymakers to help stabilise the British economy and improve consumer confidence.
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