Britons Already Worried Over Budgets as Cost-of-Living Crisis Gathers Speed
The U.K.’s fast-approaching cost-of-living crisis is already making Britons worry about their budgets, setting up a rocky 2022 for households and businesses still reeling from the impact of the pandemic.
Many people are particularly worried by both their personal finances and the general economic situation, making them reluctant to splash out on big purchases, according to a closely watched survey of consumer confidence released on Friday. Meanwhile, the arrival of the omicron variant hammered retail sales in December.
Sentiment and spending each crumbled as the U.K. faces the prospect of surging fuel bills, higher inflation, tax rises and the possibility of several interest rate rises. Economists fear that a consumer retreat could hit growth and foreshadow a tough year ahead.
Friday’s data showed that GfK’s consumer confidence index fell sharply this month to its lowest level since the depths of the Covid-19 lockdown in early 2021.
ING Groep NV economist James Smith called the report a “potential warning sign” for U.K. retailers, who were badly hit during the pandemic by ongoing restrictions and shifting consumer behavior.
Separately, retail sales showed a 3.7% decline in December -- the worst reading since January 2021 -- as the spread of omicron kept shoppers at home.
The twin impacts of omicron and the coming strain on household budgets increase the risk of a bumpy recovery in 2022, said Niraj Shah of Bloomberg Economics.
U.K. REACT: Retail Sales Face Cost-of-Living Drag After Omicron
“While we expect the impact of omicron to be short lived, the cost-of-living squeeze has only just begun and may curb the recovery on the high street,” said Shah.
“Despite the easing of Covid restrictions, the ensuing squeeze in living standards and the threat of rising interest rates may make households more reluctant to spend.”
The gloomy data came 48 hours after figures showed inflation hit a three decade-high in December, more than wiping out slowing wage growth.
April will bring an estimated 50% increase in domestic energy bills, plus tax rises and the prospect of further increases in inflation. The Bank of England is also considering raising interest rates in the early months of the year.
“Customers face strong headwinds in 2022, with energy prices and National Insurance contributions both set to rise,” said Helen Dickinson, chief executive of the British Retail Consortium. “Rising inflation is reducing consumer demand while increasing the costs for businesses.”
©2022 Bloomberg L.P.