Consumer confidence remains resolutely in the doldrums as the optimism of young adults and higher-income households declined, according to a closely watched monthly survey.
GfK’s long-running index held firm at –23 in June as worries about the impact of the conflict in the Middle East on household bills and petrol and food prices continued to weigh on consumer sentiment.
The survey, which sampled just more than 2,000 consumers between 29 May and 10 June, showed views in personal finances and the overall economy over the past 12 months had slipped by three and two points respectively to –10 and –49. Confidence in personal finances for the coming year stayed flat at –2, while hopes for the economy in the next 12 months improved by two points to –36.
The major purchase index, tracking intentions for big spending, was flat at –20 and the savings index, weighing up how much consumers plan to hoard, dropped two points to +20.
“The lack of movement in the headline figure is misleading as, beneath the surface, there are new signs that confidence is weakening,” said Neil Bellamy, consumer insights director at GfK.
“The biggest fall this month is among those aged 16 to 29, traditionally one of the most optimistic groups. Here confidence has dropped 11 points over the past month to –2, the lowest level seen for two years, driven by large falls in views on both their own personal finances and the wider economy.
“More broadly, there are now no demographic groups with a positive confidence score, including higher-income households earning £50,000 or more, who have slipped back into negative territory as of June.
“Confidence remains subdued and vulnerable to further economic or political uncertainty.”
The gloomy views of consumers comes as the Bank of England decided to hold interest rates firm at 3.75% at yesterday’s meeting of the Monetary Policy Committee.
Seven members of the MPC voted to hold rates, while two wanted to raise the base level. It comes in a week where official inflation figures came in at lower than expected by economists at 2.8% and oil prices plunged following a peace deal being signed by the US and Iran.
Danni Hewson, AJ Bell head of financial analysis, warned despite the peace deal continued caution was necessary.
“The situation in the Middle East remains delicate and the months long blockade of the Strait of Hormuz won’t just magically disperse, with the damage done to critical energy infrastructure potentially taking years to repair,” she said.
“Some price rises are already baked in, with the outgoing Apple boss Tim Cook the latest business leader to warn that tight supply of memory chips is causing price hikes that Apple will ultimately have to pass on to their end customers.
“Households and businesses might do a lot of the heavy lifting themselves. Confidence has been knocked and memories of the last cost of living crisis are likely to alter consumer behaviour as the nights draw in and smart meters start ticking up. But there is a feeling that things could be shifting, and that the downward path for interest rates has just been stalled and not completely rerouted.”
Tesco boss Ken Murphy yesterday warned the war in Iran had hit consumer confidence despite the sentiment being driven by worst-case forecasts.
Murphy said the food retail giant was doing everything in its power to minimise price rises for its shoppers.
The Tesco CEO had previously downplayed predictions by the Food & Drink Federation that food inflation would top 10% by the year end.
And the IGD this week forecast food inflation would now peak at 5.5% in the second half of the year, significantly below the 8% level predicted in the event of a “severe” energy shock.
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