UK consumer sentiment hit by budget gloom
UK consumer confidence has been hit by fears over the budget, and the governmentâs gloomy warnings, a new survey has found.
The British Retail Consortium has reported that householdsâ assessment of the general economic situation over the next three months has slumped this month.
People are also more worried about their personal financial situation, following heavy hints from Downing Street that Octoberâs budget will include tax rises.
The BRCâs measure of householdsâ assessment of the general economic situation over the next three months sank to -21 in September from -8 in August.
Older peopleâs confidence in economic outlook has taken a particular blow, the BRC says â perhaps a sign of the damage caused by the cuts to winter fuel payments for pensioners.
Helen Dickinson, chief executive of the British Retail Consortium, says consumer confidence âfell significantlyâ in September, adding:
Negative publicity surrounding the state of the UKâs finances appears to have damaged confidence in the economic outlook, particularly among older generations.
Despite this, expectations for future retail spending, while negative, did not yet appear to have been adversely affected, with many consumers expecting to reduce the amount they save instead.
Hereâs the details of the BRCâs Consumer Sentiment Monitor:
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Personal financial situation worsened to -6 in September, down from +1 in August.
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State of the economy worsened significantly to -21 in September, down from -8 in August.
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Personal spending on retail, improved slightly to -8 in September, up from -9 in August.
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Personal spending overall fell to +10 in September, down from +11 in August.
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Personal saving fell to -9 in September, down from -4 in August.
This is the second survey in less than a week to show a slide in consumer optimism this month.
Last Friday, market research group GfK reported that consumer confidence in the UK has fallen to its lowest since March, amid growing concerns over government plans for a âpainfulâ budget.
Key events
Swiss National Bank cuts interest rates
Newsflash: Switzerlandâs central bank has cut interest rates.
The Swiss National Bank hss announced it has eased monetary policy, by lowering its policy rate to 1.0%, from 1.25%, its third rate cut of the year.
It acted after inflation in Switzerland fell to 1.1% in August, down from 1.4% in May, saying:
Inflationary pressure in Switzerland has again decreased significantly compared to the previous quarter. Among other things, this decrease reflects the appreciation of the Swiss franc over the last three months.
The SNB also hinted that rates could be cut again soon, adding:
The SNBâs easing of monetary policy today takes the reduction in inflationary pressure into account. Further cuts in the SNB policy rate may become necessary in the coming quarters to ensure price stability over the medium term.
The move comes two weeks after the European Central Bank lowered its key rates.
In March, the SNB became the first major central bank to cut interest rates, which it followed up with a second cut in June.
S&P and Moody’s slash Thames Water’s ratings as default fears mount
Confidence in Thames Waterâs ability to repay its debts is also falling.
Two credit rating agencies have downgraded Thames Water overnight, concerned that Britainâs largest water provider is running out of money.
S&P lowered its ratings on Thamesâs class A and class B debt to âCCC+â and âCCC-â respectively, close to default levels.
It blamed Thamesâs announcement last week that it could run out of cash in December unless it can rewrite its loan terms.
S&P says this came as a surprise:
On Sept. 20, 2024, Thames Water Utilities Finance PLC (Thames Water) announced that its liquidity sources only cover its liquidity needs until December 2024, unless it obtains senior creditorsâ approval to release £0.38 billion of cash reserved under its financing covenants and unless it can draw on its £0.42 billion revolving credit facility (RCF) line.
This announcement is contrary to our previous expectation in July, based on the companyâs disclosure, that liquidity would last the company through May 2025.
Moodyâs is also concerned that Thames Water is close to defaulting on its loans.
Moodyâs cut Thames Waterâs corporate family rating to Caa1 from Ba2, saying:
Todayâs downgrade reflects a significantly tighter liquidity position than previously expected and our view that this will likely lead in the near term to a distressed exchange, where creditors agree to some form of amendment or extension of credit terms that results in a loss, or a loss is otherwise imposed on them, relative to the original promise to pay.
A distressed exchange of this type constitutes a default by Moodyâs definition. In the medium term, inability to attract new equity funding may ultimately lead to a creditor-led debt restructuring or one that is imposed as part of a special administration process, should the company meet the criteria for special administration to be called.
The fall in consumer confidence means many people are planning to spend less in the shops in the next three months â with fashion, home and garden furniture, DIY and electronics likely to be worse hit.
Many people also plan to spend less dining out, as this chart from the BRCâs Consumer Sentiment Monitor shows:
UK consumer sentiment hit by budget gloom
UK consumer confidence has been hit by fears over the budget, and the governmentâs gloomy warnings, a new survey has found.
The British Retail Consortium has reported that householdsâ assessment of the general economic situation over the next three months has slumped this month.
People are also more worried about their personal financial situation, following heavy hints from Downing Street that Octoberâs budget will include tax rises.
The BRCâs measure of householdsâ assessment of the general economic situation over the next three months sank to -21 in September from -8 in August.
Older peopleâs confidence in economic outlook has taken a particular blow, the BRC says â perhaps a sign of the damage caused by the cuts to winter fuel payments for pensioners.
Helen Dickinson, chief executive of the British Retail Consortium, says consumer confidence âfell significantlyâ in September, adding:
Negative publicity surrounding the state of the UKâs finances appears to have damaged confidence in the economic outlook, particularly among older generations.
Despite this, expectations for future retail spending, while negative, did not yet appear to have been adversely affected, with many consumers expecting to reduce the amount they save instead.
Hereâs the details of the BRCâs Consumer Sentiment Monitor:
-
Personal financial situation worsened to -6 in September, down from +1 in August.
-
State of the economy worsened significantly to -21 in September, down from -8 in August.
-
Personal spending on retail, improved slightly to -8 in September, up from -9 in August.
-
Personal spending overall fell to +10 in September, down from +11 in August.
-
Personal saving fell to -9 in September, down from -4 in August.
This is the second survey in less than a week to show a slide in consumer optimism this month.
Last Friday, market research group GfK reported that consumer confidence in the UK has fallen to its lowest since March, amid growing concerns over government plans for a âpainfulâ budget.
Elon Musk ‘not invited’ to UK investment summit
Back in the UK, Elon Muskâs comments about this summerâs UK riots have cost him a place at next monthâs International Investment Summit, the BBC reports.
The Summit is part of the Labour governmentâs push to stimulate economic growth, by attracting more spending to the UK, and is expected to take place at a central London location.
The goal is to show that the UK is âopen for businessâ under a new government.
But, the BBCâs Faisal Islam reports that Musk, currently the worldâs richest person, has not been invited to the International Investment Summit in response to his social media posts during last monthâs riots, explaining:
During the August riots, Mr Musk shared, and later deleted, a conspiracy theory about the UK building âdetainment campsâ on the Falkland Islands for rioters, on X – the social media platform he owns.
At the time ministers said his comments were âtotally unjustifiableâ and âpretty deplorableâ.
Last month, Downing Street criticised Musk after he posted on X that âcivil war is inevitableâ under a video of violent riots in Liverpool.
The Guardian reported earlier this week that business leaders have warned that the global investment summit risks falling flat, amid growing frustrations over high costs of involvement and its timing two weeks before the budget.
Stephen Phipson, the chief executive of Make UK, which represents 20,000 manufacturing firms across the country, said:
âItâs the wrong way round. There is a concern about the timing, coming two weeks before the budget.
People will want to know what the governmentâs priorities are before committing investment.â
Ukraine growth forecast cut as energy strikes take toll
The European Bank for Reconstruction and Development has also cut its growth forecast for Ukraine, warning that it is taking an economic hit from Russian attacks on its energy infrastructure.
The EBRD lowered its forecast for Ukraineâs economic growth to 4.7% next year from 6% in May due to the attacks, following an expected expansion of 3% this year.
Those attacks are forcing Ukraine to rely on more expensive imports as it builds alternative sources of energy, the EBRD points out/
Their chief economist, Beata Javorcik, told Bloomberg:
âMore than half of electricity generation capacity was destroyed.
Now, some of the gap is being filled by imports of electricity from Europe, but this electricity comes at a higher cost. So that puts energy intensive industries at the disadvantage.â
Introduction: EBRD cuts growth forecasts
Phillip Inman
Good morning, and welcome to our rolling coverage of business, the financial markets and the world economy.
Europe is struggling to cope with much higher energy prices than the US and a lack of investment, putting the brakes on growth, the European Bank for Reconstruction and Development (EBRD) has warned.
The bank, which lends to countries across eastern Europe, central Asia and north Africa, revised down its expectations of growth this year and next year, saying many countries would be unable to grow more quickly following a resurgence in gas and electricity prices, my colleague Phillip Inman reports.
While oil prices have stabilised at around the average levels seen between 2017 and 2021, âgas in Europe remains relatively expensive, trading at almost five times the US price, and some economies in the EBRD regions are paying significantly higher average import prices for gas than Germany.â the bank said in its latest Regional Economic Prospects report.
Expected growth across the EBRD region this year was downgraded by 0.2 percentage points from a previous forecast in May to 2.8%.
In 2025, it expects growth of 3.5%, 0.1 percentage point below the previous projection.
âOur economies are steadily adjusting to evolving global dynamics,â said Beata Javorcik, the EBRDâs chief economist.
âThe easing of inflation and recovery in real wages offer encouraging signs.â
However, âongoing vigilanceâ would be required as economies adapt to renewed inflationary pressures, concerns about energy security following a flare-up in the middle east conflict, trade wars and high interest rates.
Javorcik said high energy prices and a lack of investment had brought Europe to a âcrisis pointâ.
Earlier this month Mario Draghi, a former prime minister of Italy, told EU leaders they needed to club together and spend about 4.5% of the economic blocâs annual income on investment to boost long term growth prospects.
Javorcik said the report, which was dismissed by German finance minister Christian Lindner, would provide the basis for a discussion about Europeâs competitiveness and the need for investment finance across all 27 EU nations.
The agenda
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7am BST: German consumer sentiment report from GfK
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8.30am BST: Switzerlanâs central bank sets interest rates
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1.30pm BST: US GDP report for Q2 2024 (final reading)
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2.20pm BST: Federal Reserve chair Jerome Powell to speak at the 2024 US Treasury Market Conference in New York
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2.30pm BST: ECB president Christine Lagarde speech at a conference on âNew Frontiers in Macroprudential Policyâ in Frankfurt.