September’s unexpected rise in the GfK Consumer Confidence Index to -13, up from -14 in August, marks an improvement but not a full recovery.
A change in Prime Minister, combined with a boost to consumer spending from the summer's hot weather, has helped drive three consecutive monthly increases in the index for the first time since summer 2024.
But recent gains are set to come under threat as household concerns about rising inflation, higher borrowing costs and weaker job prospects reemerge. With the Budget approaching, Andy Burnham’s Government will have to face the harsh realities of government. The fiscal situation remains unsustainable and tax rises are inevitable.
The rate of inflation has been rising again and now sits at 3.1%, raising the prospect that the cost-of-living squeeze could persist for much longer than had previously been forecast.
Higher inflation also has implications for interest rates. There is an expectation that the Monetary Policy Committee will vote to raise rates to 4% in the November meeting. Fixed rate mortgages have already become more costly, creating anxiety for those homeowners who are nearing refinancing deals. At the same time, job vacancies in August reached their lowest since March 2021 at just over 700,000, stoking growing uncertainty about future job security.
The ‘Burnham Bounce’ is perhaps not over yet, but the harsh economic realities of the past few years are approaching on the horizon. With inflation rising, borrowing costs elevated and ongoing geopolitical tensions, creating the conditions for a sustained improvement in consumer confidence – rather than a short-lived spike – will be a major challenge for the government. The upcoming Budget should do as little to undermine this as possible.
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