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Consumer Confidence Dips Amid Tax Increases and Economic Concerns

Recent budget measures in the UK are reportedly damaging consumer confidence, prompting expectations of reduced growth in private sector wages over the coming year, according to two distinct analyses.

A survey conducted by S&P Global Market Intelligence highlighted a decline in consumer sentiment this month, as households recognized a worsening economic outlook and increased anxiety regarding their personal finances.

The consultancy articulated that the government has not capitalized on the slight recovery in consumer optimism observed before and after the recent general election.

In a separate report, Goldman Sachs pointed to the heightened national insurance contributions introduced in the budget—amounting to an additional £20 billion for the Treasury—as a factor that would necessitate reduced wage growth, as employers are likely to transfer some financial burdens onto their workforce.

Analysts at Goldman Sachs forecast that wage growth could decelerate as a consequence of these changes.

“We anticipate that consumer spending will slow in the latter half of next year, reflecting a decline in real disposable income growth,” they noted. “This is partially due to a decrease in real wage growth, influenced by the employer NICs increase that will likely be felt by consumers.”

The S&P report recorded a notable drop in consumer sentiment, moving from 47.3 in October to 46.9 in November. This index—encompassing surveys on financial well-being, the job market, and spending habits—indicates that sentiment is in decline, as values below 50 signal contraction.

Chris Williamson, chief business economist at S&P Global Market Intelligence, expressed concern that the labor market may face challenges ahead. “The improvement in consumer sentiment over the past two years has been heavily reliant on rising incomes and a busy job market, but indications of declining job security are surfacing,” he stated.

Williamson cautioned that worsened job security, potentially exacerbated by the budgetary measures including the increase in employer NICs, could further undermine consumer confidence, subsequently affecting both spending and overall economic growth.

Goldman analysts raised alarm over rising mortgage rates, anticipating that the Bank of England’s stance on maintaining higher interest rates longer than previously thought could strain households further.

While the immediate future appears challenging, Goldman observed that the UK economy might experience a brief period of growth before the slowdown, aided by increased public sector spending and higher salaries resulting from Rachel Reeves’s adjustments to Whitehall budgets.

Despite having lowered borrowing costs twice this year to 4.75%, the Bank of England is not expected to enact further rate cuts in the near term, pushing these possibilities into the new year.

With millions of homeowners facing refinancing decisions in 2025, there is hope that interest rates may decrease, which would alleviate some financial burdens for borrowers. However, Williamson remarked that the drop in confidence observed in November, despite the Bank’s rate cuts, points to the inadequacy of lower borrowing costs alone in shifting public sentiment.

The potential for renewed trade tensions during the Trump administration has also been flagged as a risk to the UK economy in the coming year, notwithstanding the hope of avoiding stringent new tariffs. Goldman’s analysts suggest that uncertainty regarding potential tariffs could dampen demand and impact economic growth, particularly across the euro area, which is expected to reverberate back to the UK.

According to the Centre for Economics and Business Research, should the U.S. implement a 20% tariff on UK imports alongside a 60% tariff on China, the UK economy could face a contraction of 0.9% by the conclusion of the Trump administration, assuming retaliatory measures from other nations do not occur.

The consultancy further noted that Trump’s potential re-election could significantly alter the landscape of international relations, particularly regarding trade, energy, and environmental policies.

There are concerns that escalating energy prices, prompted by retaliatory actions against U.S. tariffs, could translate into higher bills for consumers in the UK.

Source
www.theguardian.com