According to a new poll released by a trade association, British consumers have become more pessimistic over the past month due to the new Labour government’s removal of a pension benefit and the threat of tax increases in the upcoming budget.
Households’ evaluation of the overall state of the economy for the next three months fell to -21 in September from -8 in August, according to the British Retail Consortium.
This reading is the lowest since the survey’s initial reading of -23 in March. It shows the difference between the percentage of respondents with positive and negative views.
“Negative publicity surrounding the state of the UK’s finances appears to have damaged confidence in the economic outlook, particularly among older generations,” BRC Chief Executive Helen Dickinson said.
The BRC surveyed between September 10 and September 13 with a sample of 2,000 adults.
The survey was conducted by market research company Opinium. The results are consistent with those from the much longer-running GfK consumer survey conducted in September 2024, which dropped to a six-month low partly because of worries about the upcoming budget.
After taking over what they claimed to be the worst economic conditions since World War II, newly elected Prime Minister Keir Starmer and Finance Minister Rachel Reeves promised to rebuild the economy.
Rachel Reeves announced that she would stop providing 10 million pensioners with an annual fuel subsidy of 200 pounds (USD 265) and that taxes would probably increase more than she had previously stated she planned to before Labour won the July election.
Despite a slight increase in spending intentions to -8 from -9, households’ assessment of their financial outlook dropped to -6 from -1 in the BRC survey, the lowest level since the survey’s inception. Business activity softened, according to S&P Global, with some companies postponing plans until further clarification on changes to employment and tax laws was received.
However, in good news for the Labour government, the OECD has sharply upgraded its ranking for British economic growth in 2024 and 2025, after previously predicting Britain would have the weakest growth of any Group of Seven (G7) country.
The Paris-based Organisation for Economic Cooperation and Development forecasts Britain’s economy will grow by 1.1% in 2024 and 1.2% in 2025, up from previous forecasts of 0.4% and 1.0%, and similar to Bank of England forecasts last month.
The OECD’s broader global update to its forecasts now places Britain’s growth rate close to most other G7 countries in 2024 and 2025, though behind that of the United States.
Britain’s economy grew faster in the first half of 2024 than most forecasters had predicted, prompting upgrades for this year’s growth by other organisations including the Bank of England.
“Faster economic growth figures are welcomed, but I know there is more to do and that is why economic growth is the number one mission of this government,” Rachel Reeves said in response to the latest OECD report.
Rachel Reeves has hinted that she will change the government’s fiscal rules for bringing down public debt, potentially paving the way for more borrowing in a bid to speed up economic growth.
The OECD said the self-imposed targets, including a commitment to put debt as a share of economic output on a downward trend in five years, needed changing.
The rules impeded large-scale public investment with longer planning horizons without succeeding in stopping the overall debt burden from rising, it said further.
“The UK needs more investment, and so we need to create fiscal space in order to do so,” OECD Chief Economist Alvaro Santos Pereira said in a press conference.
“The OECD also criticised an overly stringent and complex planning system for blocking business and housing investment, as well as regional disparities in infrastructure spending and a rise in labour market inactivity since the pandemic,” Reuters reported.
The OECD has also continued to predict that Britain would have the highest inflation of any G7 country in 2024 and 2025 at an average of 2.7% in 2024 and 2.4% in 2025, little changed from its previous forecast.
British inflation was 2.2% in August, just above the central bank’s 2% target, but the central bank expects it to rise due to big increases in the cost of domestically produced services and the fading effect of 2023’s fall in energy costs.