Record-breaking gloom grips Britain ahead of 'nightmare' winter

·4-min read
Shoppers make their way through drifting snow in Consett, CoDurham, United Kingdom - Ian Horrocks/Getty Images
Shoppers make their way through drifting snow in Consett, CoDurham, United Kingdom - Ian Horrocks/Getty Images

A record-breaking economic gloom is gripping Britain as households brace for a “nightmare” winter of soaring costs.

Consumer confidence has plummeted to its lowest ever level as the Bank of England increases interest rates to counter rocketing inflation, according to a closely watched survey from the data company GfK.

Meanwhile, separate data showed that a host of industries are in contraction in a sign the country is teetering on the brink of recession.

GfK blamed acute concerns over the cost of living for a drop in its confidence index to -44, the lowest it has been since launching in 1974.

The outlook darkened on every one of GfK's measures, with Britons feeling increasingly pessimistic about their own finances and the general economy both at present and over the next year.

The bleak outlook is unlikely to be enough to prevent the Bank of England from a spate of further interest rate rises to control inflation, which reached a new 40-year high of 10.1pc in July.

Joe Staton, of GfK, said: “These findings point to a sense of capitulation, of financial events moving far beyond the control of ordinary people.

“With headline after headline revealing record inflation eroding household buying power, the strain on the personal finances of many in the UK is alarming.

“Just making ends meet has become a nightmare and the crisis of confidence will only worsen with the darkening days of autumn and the colder months of winter.”

At -60, the sub-gauge for how Britons see the economy performing a year from now was also a record low.

Linda Ellett, head of consumer markets at KPMG, said people “are either already struggling with rising costs, or are fearing what's looming on the horizon”.

The report comes as data this morning is expected to show retail sales excluding fuel dropped by 0.3pc last month, a further blow to Britain’s high streets.

Chris Hare, an economist at HSBC, said some external price pressures appear to be easing as global supply chain entanglements ease, but warned domestic inflation is on the march.

He said: “For now, the UK's cost of living outlook keeps getting worse."

Mortgage holders are facing painful cost increases as the Bank of England rapidly raises interest rates to slow demand and try to ease the rate of inflation.

Earlier this month, officials voted to increase the Bank Rate by half a percentage point, the sharpest increase since the mid-1990s.

Kit Juckes, an analyst at Société Générale, warned this risked causing deeper economic damage because of the delay before rate changes have an effect.

He said: “Maybe the UK should stop tightening now, because the effects of what they have already done will become clear in 2023.

“But because inflation is in double digits, they simply won't.”

Prices are expected to surge even further in the coming months as a significant increase in the Ofgem energy price cap kicks in from October. Analysts say the cap could rise by 82pc or more amid elevated natural gas prices.

Liz Truss and Rishi Sunak, the prime ministerial candidates, have dismissed calls from Labour and the Liberal Democrats to freeze prices at current levels, but Investec analysts said whichever of the pair emerges victorious will have to intervene.

They said: “[The] imperative to act in some way to mitigate the squeeze on households is increasingly clear, and little disputed.

“It is the scale of the mitigation and its mechanism that remain uncertain for now.”

In a sign of the widespread pain being felt by businesses, the number of sectors suffering a slowdown has reached its highest since the onset of the pandemic.

Nine of out 14 major business sectors saw their output contract during July, according to the Lloyds Bank UK Sector Tracker – the most in 18 months.

Jeavon Lolay, the bank’s head of economics, said: “Rising inflationary pressures are currently dampening activity and demand across the economy.

"This includes a consumer-led slowdown reflecting the fall in real incomes and ongoing supply constraints and staff shortages.”

Small companies are giving up hope, with the majority expecting zero or negative growth in the coming year.

Just over 53pc expect growth, with four-fifths dealing with increased costs, according to the Federation of Small Businesses. Two-thirds of the companies that still expect growth cited the weak domestic economy as a potential barrier.

Martin McTague, the FSB’s national chair, warned prices were increasing “more rapidly than small businesses can run to keep up”.

He said: “It’s a toxic recipe for the future health of the economy."