Consumer confidence in the UK has taken a big hit as people worry about an upcoming budget that many fear will be tough on their wallets. Even though inflation has calmed down and wages have been steady, the fear of higher taxes and less government support has made people nervous about the future.

According to a recent survey from the data company GfK, the confidence of UK consumers has dropped to its lowest point since March. This is bad news for the country's recovery from the cost of living crisis that hit hard in the past couple of years. The small steps that had been made to boost morale earlier this year have all but disappeared.

Why the Big Drop in Confidence?

Neil Bellamy, who works for GfK and keeps an eye on how consumers are feeling, says the sudden change in how people view their personal finances is surprising. After all, inflation had come down earlier this year, borrowing money was cheaper, and wages had grown. But these positive trends haven’t been enough to ease the worry that people feel about what’s coming next.

One major concern is the end of winter fuel payments. These payments used to help people, especially pensioners, cover the cost of heating during the cold months. Now that they’re gone, many people are anxious about how they’ll manage. Bellamy also mentioned that there are likely to be more hard decisions about taxes and government spending that will affect everyone.

All eyes are now on the budget set to be revealed on October 30. Will it bring higher taxes? Will there be more cuts to welfare or public services? People aren’t sure, and that uncertainty is shaking confidence.

The Government's Tough Choices

The Labour Party’s leader, Keir Starmer, has already hinted that the new government will have to make "painful" decisions to fix the country’s finances. Labour says they’ve discovered a “£22 billion black hole” in the UK’s budget, meaning the country is deeper in debt than many realized.

Back in August, the Chancellor, Rachel Reeves, made some bold announcements. She said the government would stop winter fuel payments for most pensioners and put off plans to improve social care. On top of that, she cut plans for new roads, railways, and hospitals, all in an effort to lower how much the government needs to borrow. These were just the first steps in what looks like a tough financial plan ahead.

But these choices come at a cost. People are already feeling the squeeze from inflation and rising prices. Now, they’re worried that tax hikes and fewer government benefits will hit their wallets even harder. This could spell trouble for the UK's economic recovery. Consumer spending—how much people buy and spend—plays a big role in how well the economy grows. If people feel unsure or nervous about their money, they’re less likely to spend it, and that could slow down the economy even more.

Confidence Plummets

The numbers from GfK paint a clear picture of the public’s mood. Overall consumer confidence dropped to -20, the same low point seen earlier this year. When people were asked how their personal finances had changed over the last year, the score fell by two points to -9. The outlook for the next 12 months was even worse, dropping by nine points to -3.

Perhaps the most worrying figure is the sharp drop in confidence between August and September. Just a month ago, consumer confidence sat at -13. But in just a few short weeks, it plunged by seven points to -20, the biggest drop in confidence since April 2022.

A Look Back: How Bad Was It?

Despite this big fall in confidence, things aren’t quite as bad as they were in late 2022. Back then, consumer confidence was at its lowest level since records began in 1974. Inflation had soared to 11.1% in October 2022, the highest it had been since the 1980s. Prices for everyday essentials like food and energy went through the roof, and people really felt the pressure.

The Bank of England stepped in to try to control inflation by raising interest rates, which made borrowing money more expensive. But for many households, the damage had already been done. The cost of living crisis was at its peak, and household budgets were stretched to the limit.

Is There a Silver Lining?

Thankfully, inflation has cooled down a lot since then. By this year, inflation had fallen closer to the Bank of England’s target of 2%. In August, the Bank felt confident enough to lower interest rates for the first time in four years. This was welcome news for anyone with loans or mortgages, as borrowing money became a bit cheaper.

Still, even with inflation down and wages holding steady, the fear of what’s to come with the new budget is casting a long shadow over the UK economy. If consumers continue to feel unsure about their financial future, they may spend less, and that could make it harder for the country to recover from last year’s recession.

What Happens Next?

The big question now is what the government will decide in the budget on October 30. Will there be more tax hikes? Will welfare benefits be cut? The uncertainty is making it hard for people to feel optimistic about the future.

While the numbers may not be as bad as they were in 2022, the sharp drop in consumer confidence is a worrying sign. The government faces a tough challenge: they need to fix the country’s finances without hurting household budgets too much. If they can’t strike the right balance, the UK’s economic recovery may be at risk, and consumer confidence could fall even further.