UK consumer confidence may struggle to ‘ride out’ uncertainty
Consumer confidence ended 2024 on a high, but analysts have warned that it might not be able to ride out a wave of economic uncertainty this year.
Confidence was at its highest since April 2021 in December, according to Yougov’s and CBRE’s monthly consumer confidence survey. Business activity, optimism about the future, and perceptions of house prices all showed improvements.
But forecasting lead Sam Miley warned of economic clouds on the horizon and said that consumers’ ability to “ride out” economic uncertainty will be “key” to the economy’s performance this year.
“The outlook for the economy is weakening, amidst expectations of continually high inflation and concern over the potential for further tax rises.
“Meanwhile, the recent turbulence in government debt markets could hinder any potential reduction in mortgage costs over the coming months, impacting household finances and property prices,” Miley said.
Gilt yields act as benchmarks for lending across the economy, so higher yields may mean that mortgage rates remain higher for longer.
Chief UK economist at Capital Economics, Paul Dales, expects the average mortgage rate to rise from around 4.5 per cent in December to five per cent in January.
If gilts continue to rise, Rachel Reeves may also be forced to raise taxes to contend with the billions which will be added to the Government’s bill – although reports have suggested she favours spending cuts over tax rises.
Yougov’s findings are supported by KPMG UK’s latest consumer pulse survey, which found six in ten of UK households felt financially secure, while four in ten considered the economy to be worsening.
Half of respondents said they felt they could spend happily, while only three per cent felt they were unable to cover essential costs.
KPMG also found that eighty per cent of consumers planned to make a big ticket purchase next year, most commonly a holiday – a key change from the post-pandemic environment, which prioritised small, affordable luxuries over big ticket items.
“Whether that spend comes to fruition will depend on a range of factors, including continued reduction in interest rates and whether perception about economic worsening becomes a reality in the form of increased job insecurity,” Linda Ellett, head of consumer, retail and leisure for KPMG UK, said.