Inflation drives consumer confidence to historic low
Consumer confidence has fallen again to a near-historic low as household budgets are squeezed, even as a new analysis suggests energy bills will fall faster than feared later this year. GfK’s longrunning Consumer Confidence Index dropped three points in January to minus 45 after a short-lived and weak rally in the last quarter.
Confidence in the general economy for the coming 12 months fell one point to minus 54 and remains 22 points lower than last
January, while the forecast for personal finances increased to minus 27 but is still 25 points lower than this time last year.
The major purchase index, an indicator of confidence in buying big ticket items, fell six points to minus 40 – some 30 points lower than last January. The pessimistic mood comes as the rate of inflation dipped for the second month in a row in December, to 10.5 per cent, offering more evidence the peak of the cost of living crisis has passed but offering scant relief for households and businesses who are still facing eye-watering prices.
Food price inflation hit yet another 45-year high, at 16.8 per cent, in December, while the Government will scale back its energy support package from April, capping average household gas and electricity bills at £3,000 a year, up from £2,500 currently.
Linda Ellett, UK head of retail and leisure consumer markets at KPMG, said: “Higher essential costs, a fear of further increases yet to come – particularly the April energy price cap rise – are weighing on consumer confidence, whilst increased spending on credit at Christmas is also weighing on many minds. Whilst appetite and ability for big-ticket spending remains limited in this climate, there are still consumers planning on spending this year on the likes of holidays, home improvements and appliances.
“The economy will certainly need that spend to come to fruition over the coming months.” Meanwhile, energy bills could be hundreds of pounds lower than previously thought in the latter half of this year but only after a spike in the spring, new analysis has suggested.
The average household's energy bill might hit around £2,200 a year from July, around £300 less than previously thought, experts at Cornwall Insight said. It is around the same as an average family currently pays after the government support has been factored in.
Gas prices have plummeted in recent weeks, and have more than halved since early December. But while wholesale gas is cheaper than it has been for over a year at around 150p per
therm, this is still around three times higher than at the beginning of 2021.
Craig Lowrey, the principal consultant at Cornwall Insight, warned that the picture could rapidly change if global markets get spooked. Experts have long forecast that energy prices are not going to fall back to what used to be considered “normal” levels until the end of the decade, if at all.
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