UK consumer confidence suffers its biggest fall since the pandemic as fuel costs bite

UK consumer sentiment plunged in October as soaring fuel prices brought home the scale of the cost-of-living hit from the Middle East conflict, according to GfK¹. The slump was as big as the Brexit shock¹. Confidence fell at the fastest pace since the Covid-19 pandemic, reversing the bounce in optimism seen over the summer^3,5.

The index has been closely tracked by the government and the Bank of England for early warning signs from the economy⁵. Surveys this month from S&P Global and LSEG/Ipsos have also shown weaker consumer sentiment, undoing a recovery that had taken hold earlier^6,7.

The British Retail Consortium’s consumer sentiment monitor showed that views of the economy deteriorated for a third consecutive month². Separately, UK retail sales fell 0.4% in September as consumer confidence hit a six-month low⁸.

Why it matters to investors

Rising cost-of-living pressures and energy prices have increased the likelihood that the Bank of England will raise interest rates on 5 November⁴. The collapse in confidence reflects what one account called relentless cost-of-living pressures².

The timing adds to the pressure on fiscal policy. The GfK reading tumbled ahead of Healey’s Budget^6,7. The fall in confidence was driven by fuel prices tied to the Middle East conflict, rather than by a domestic shock¹.

For investors, weaker household confidence and falling retail sales point to strain on consumer spending at the same time as the central bank weighs higher borrowing costs^4,8. The reversal of the summer bounce means the recovery in sentiment seen earlier in the year has been lost^3,6.

The breadth of the evidence is notable: GfK, the British Retail Consortium, S&P Global and LSEG/Ipsos all pointed the same way this month^1,2,6.

What to watch

The Bank of England’s decision on 5 November is the first marker, since rising energy and living costs have made a rate rise more likely⁴. Healey’s Budget is the second, as it comes after the sharpest fall in confidence since the pandemic^3,6.

The British Retail Consortium’s monitor will show whether views of the economy worsen for a fourth month after three consecutive declines². Retail sales data will show whether the 0.4% drop in September extends into October as confidence slides⁸. Fuel prices tied to the Middle East conflict remain the main driver named in the surveys¹.