Majority of Brits think economy is getting worse
A majority of Brits think the economy is getting worse, with sentiment souring significantly amid rising prices and weak growth.
Nearly six in ten Brits believe the UK economy is on a downward spiral, a major jump from 43 per cent at the beginning of the year, marking a significant blow to Chancellor Rachel Reeves and the Labour Party, which has claimed it has restored financial stability since it came to power.
The fresh findings – from KPMG UK’s latest Consumer Pulse survey – also showed half of consumers plan to cut their discretionary spending as a result of the dampening outlook.
“A landscape of consumers adjusting to higher household essential outgoings and spending caution due to perception of a worsening economy is set to continue into 2026,” said Linda Ellett, head of consumer, retail and leisure for KPMG UK.
Consumers’ negative perception towards the economy comes despite the Bank of England chopping interest rates by a whole percentage point over the course of the year in four separate cuts.
Around 15 per cent of respondents to KPMG’s survey blamed their attitudes towards the economy on interest rates not falling as much as expected.
But the most significant contribution to souring economic sentiment was the cost of groceries (81 per cent) and the cost of household utilities (75 per cent).
Inflation has remained sticky throughout the year, despite a surprise drop in December to 3.2 per cent. But this remained well above the Bank of England’s target of two per cent.
Ahead of Rachel Reeves’ second Autumn Budget, the UK’s largest supermarkets wrote to the Chancellor calling for the Treasury to bring “inflation to a heel”.
“Given the costs currently falling on the industry, including from the last Budget, high food inflation is likely to persist into 2026,” bosses from the likes of Tesco, Lidl and Morrisons warned.
Economy stalls in the second half of 2025
Economists sounded the alarm on the state of UK finances after the government’s growth agenda was dealt another hammer blow in December.
Figures published by the Office for National Statistics (ONS) showed production output shrank 0.5 per cent in October, whilst construction contracted 0.3 per cent. The all-important services sector, which is estimated to make up over 80 per cent of the economy, did not grow at all.
This led to a 0.1 per cent contraction despite expectations of a 0.1 per cent expansion.
Weeks later, the ONS downgraded the economy’s second quarter expansion to a sluggish 0.2 per cent from 0.3 per cent, stating it painted a picture of a slowing economy.
Economists have pencilled in more subdued growth for the years ahead. Alex Kerr, UK economist at Capital Economics, said with the economy slowing “significantly” in the second half of 2025 “, we doubt 2026 will be much better”.
Capital Economics expects a 1.4 per cent expansion in 2025, before falling to just one per cent in 2026, with the public sector “the main source of growth”.
The Confederation of British Industry (CBI) has pencilled in a 1.3 per cent expansion in the UK economy for the year ahead after the Chancellor revealed an extra £11bn in state spending plans in her Budget.
Consumers are expected to be more hesitant to spend in 2026, with KPMG data showing 13 per cent believing their discretionary spend in the forthcoming 12 months will be higher than the previous.
“Annual consumer spending growth looks set to sluggish again, with available discretionary budget prioritised,” Ellett said.