UK consumer confidence hits record low amid tariff worries, foreshadowing potential weakness in consumer spending.
UK Consumer Confidence Hits Lowest Level Since 2023 Amid Tariff Concerns
The latest barometer of sentiment from the data company GfK has fallen to its lowest level since November 2023, with consumer confidence in the UK plummeting amid concerns over Donald Trump‘s trade wars and their impact on living costs for British households.
The UK Consumer Confidence Index, compiled by YouGov and the European Social Survey, measures consumers' perceptions of their financial situation.
It has been declining since 2016, with a score of -12 in 2022.
Factors influencing this trend include Brexit uncertainty, high inflation, and economic instability.
The index is composed of five sub-indices: Recession Expectancy, Personal Finance, Spare Pockets, Job Security, and Major Purchase Savings.
Understanding these trends helps businesses adapt to changing consumer behavior.
The Root Cause of the Downturn
A combination of domestic tax increases, rising bills, and worries over the US president’s tariffs have weighed heavily on consumers. The consumer confidence index, closely monitored by the government and the Bank of England since the early 1970s, has fallen by four points to -23.
Tariffs are taxes imposed on imported goods, affecting global trade.
The World Trade Organization (WTO) estimates that tariffs can increase the cost of imported goods by 10-20%.
High tariffs can lead to retaliatory measures from other countries, creating a trade war.
The US-China trade war, for example, saw tariffs rise from 3% in 2017 to 25% in 2019.
This led to a decline in international trade and economic growth.
Tariffs can also impact consumers, making imported goods more expensive and potentially leading to inflation.
Rising Inflation Expectations
The inflationary impact outside the US is not as clear because exports from US trading partners could be rerouted elsewhere, and a glut of goods arriving in those places could cause prices to fall. However, growing numbers of companies are warning that the disruption to supply chains could force them to put up prices.
Economic Implications
Falling confidence levels can foreshadow weakness in consumer spending as households tighten their belts in response to worries over the outlook for their financial situation, particularly when it comes to big-ticket purchases. The Bank of England expects a rise to 3.7% this summer before slowly falling back to its 2% target over the next two years.
The UK economy is a developed market economy and one of the largest in Europe.
It has a nominal GDP of over $2.6 trillion, making it the fifth-largest economy globally.
The service sector dominates the economy, accounting for around 80% of GDP.
The UK is also a significant financial hub, with London being home to several major banks and financial institutions.
The country has a highly skilled workforce and a strong trade relationship with other countries.
A Potential Double Whammy
Neil Bellamy, the consumer insights director at GfK, questioned whether Britain was ‘on the verge of another round of rapidly increasing prices’ on the back of Trump’s tariffs. If so, consumer confidence is likely to collapse, and the broad gains seen since the disastrous September 2022 mini-budget – when confidence hit a record low of -49 – could quickly be eroded.
The Impact on Consumer Spending
The latest snapshot from GfK shows that the measure of UK consumer expectations for the general economic situation over the next 12 months fell by eight points to -37, a significantly worse reading than in April 2024. The forecast for personal finances over the next 12 months also slipped by four points to -3, which is five points worse than this time last year.
A Cautionary Tale
The erosion of consumer confidence can have far-reaching consequences for the economy. As households tighten their belts in response to worries over the outlook for their financial situation, consumer spending – a key driver of economic growth – is likely to suffer.
