UK consumer confidence rises for third month

UK consumer confidence rose to -13 in September, its highest level since August 2024. This one-point increase from August marks the first three-month consecutive rise since summer 2024 and surpassed market forecasts.

While the headline index improved, underlying behaviour shows caution. The GfK Savings Index rose by five points in September, indicating a stronger desire to build a financial buffer. Conversely, the Major Purchase Index, which tracks willingness to buy expensive items, fell by one point. This divergence suggests those with disposable income are saving rather than spending on big-ticket items.

Mixed signals in spending and saving behaviour

The rise in the Savings Index is not factored into the headline confidence score. It may indicate that households are preparing for potential economic shocks. The decline in the Major Purchase Index comes at a critical juncture for the retail sector as it heads into the vital holiday trading period, known as the Golden Quarter. Consumers are less willing to buy big-ticket items this month and more keen to save money instead.

Inflation and energy costs pose key risks

The primary drag on consumer optimism is the resurgence of inflation, driven largely by higher energy costs and volatile fuel prices. Neil Bellamy, consumer insights director at GfK, stated that the return of higher inflation removes one of the strongest positives seen in previous months. He noted that while the headline score improves, confidence remains firmly negative and could soon falter.

Market analysts note that if households are hoarding cash rather than spending, it suggests underlying demand remains fragile. This dynamic could provide the Bank of England's Monetary Policy Committee with cover to maintain a cautious approach to interest rate reductions. Policymakers will monitor whether the September dip in purchase intention is a temporary blip or the start of a prolonged contraction.

Policy context and outlook

Over the summer, UK businesses reported a so-called Burnham bounce after Andy Burnham assumed the role of prime minister. Measures included a nationwide cap on bus fares and targeted discounts on business rates for pubs, clubs, and live music venues. Next month’s UK budget on 28 October could either strengthen or undermine the recovery in consumer confidence.

Work and Pensions Secretary Pat McFadden claimed Chancellor John Healey’s budget could help build confidence in the economy. McFadden said he knew Healey would approach it responsibly, aiming to signal that Britain is a stable place to invest. Meanwhile, global factors like oil prices, with Brent crude down 1.25% at $105.30 a barrel, and US-Iran negotiations affecting energy markets, add to the uncertainty.

The durability of the consumer recovery will depend heavily on winter energy pricing and the government's ability to maintain fiscal support measures.