Consumer confidence drops in July as ‘reality bites’

Consumer confidence has suffered a sudden collapse as “reality bites” amid relentless inflation and rising interest rates, according to a long-running survey.

GfK’s Consumer Confidence Index plunged six points in July to minus 30, with concerns for personal finances and the wider UK economy over the coming year down six and eight points respectively.

However the forecast for personal finances over the next 12 months is still 19 points higher than this time last year, while expectations for the general economy remain 24 points better than last July.

The major purchase index, an indicator of confidence in buying big ticket items, is down seven points to minus 32 as consumers pulled back from spending to make ends meet.

Joe Staton, GfK Client Strategy Director, said: “For the first six months of 2023, UK consumer confidence improved despite the headwinds of the cost-of-living crisis, with double-digit inflation outpacing income growth and rising interest rates impacting both homeowners and renters alike.

“Suddenly, this resilience has collapsed, resulting in a six-point fall this month in the headline score.

“The recent fall in headline inflation will do little to improve the financial mood; consumers need to see falling prices and interest rates before that happens.

“All in all it’s bad news. People are feeling economic pain and this confidence deficit needs to be reversed before the gains this year are lost.”

Linda Ellett, UK Head of Retail & Leisure Consumer Markets at KPMG, said: “Over half of consumers that KPMG recently surveyed say they have reduced their non-essential spending so far this year.

“A quarter feel more secure than they did when 2023 began. But a third feel less secure.

“Whilst every household has been impacted by higher costs this year, the divergence in consumer confidence continues to be governed by current or near-future exposure to significant major cost increases.

“Despite efforts of householders to reduce costs where they can, for some those efforts are simply dwarfed by the sizeable jumps in mortgage or rent they are facing.”