Saturday, June 25, 2022

Consumer confidence falls to lowest on record as prices rise

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Consumer confidence has fallen to its lowest level on record as households face a “glaring new reality”, a report warns.

GfK’s consumer confidence index fell one point to minus 41 in June, the lowest level since the survey began in 1974.

Confidence in the economy for the next 12 months fell one point to minus 57 – down 55 points from last year.

People’s confidence in their personal finances fell three points to minus 28 – 39 points down from this time last year.

The bulk purchases index, a measure of confidence in buying large items, remained at minus 35, down 30 points from last June.

It came as a separate report on business expectations signaled a recession was brewing.

The latest S&P Global/CIPS Flash UK Purchasing Managers’ Index (PMI) survey showed falling business confidence.

Expectations fell at the fastest monthly rate since the pandemic began, suggesting growth in June remained at its lowest level in more than a year.

The report showed a reading of 53.1 for June, unchanged from the 15-month low recorded in May. A value above 50 indicates growth.

S&P warned that such low levels of business optimism have historically “signaled an impending recession.”

Chris Williamson, chief business economist at S&P Global Market Intelligence, said the economy is starting to look like it’s “running on empty.”

He added: “The weakness in the broad stream of economic data so far in the second quarter points to a contraction in GDP [gross domestic product]which the forward-looking PMI numbers suggest it will gain momentum in the third quarter.”

The outlook for the UK economy has deteriorated rapidly this year as households and businesses are hit by huge increases in food, fuel and energy costs.

Further increases are planned later this year, with inflation expected to hit 11 percent. The Bank of England now forecasts the economy to contract in the second quarter of the year.

A strike summer threatens to deal another blow. Railroad workers went out this week, prompting buyers to stay at home. High street footfall Thursday through 1 p.m. was 16.1 percent lower than the same day last week and 8.5 percent lower on Tuesday, retail analysts Springboard said.

In central London, the drop from last week was more than double the national average with a 34.4% drop, compared with a 27% drop on Tuesday.

Compared to pre-pandemic 2019, footfall was down 32.9 percent on all major roads on Thursday, compared to a 19.6 percent drop on Tuesday and a 52.1 percent drop in central London, compared to a drop from 49.2 percent on Tuesday.

GfK’s Joe Staton said: “With prices rising faster than wages and the prospect of strikes and rising inflation sparking a summer of discontent, many will be surprised the index hasn’t fallen further.

“Consumer sentiment is now more gloomy than it was in the early stages of the Covid pandemic, after the outcome of the 2016 Brexit referendum and even after the shock of the 2008 global financial crisis, and now there is talk of a looming recession.

“One thing is certain: Britain is facing a whole new economic reality and history shows that consumers will not hesitate to tighten and tighten their wallets when the going gets tough.”

Linda Ellett, UK Head of Retail and Leisure Consumer Markets at KPMG, said while consumer confidence continues to fall, overall retail sales are not falling quite as quickly.

Higher prices caused people to restrict some discretionary items. “But there are still tailwinds supporting spending elsewhere, in the form of high employment, pandemic savings levels and a desire for experience-based spending,” Ms Ellett said.

“Travelling, hospitality and spending leisure time [are] boosting sales of clothing, shoes and accessories, but could have a seasonal impact that will moderate at the end of the summer.

“As essential costs continue to rise, so does the risk that demand for non-durable consumer goods will fall, consistent with the persistently low consumer confidence we are monitoring.”

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