The UK’s economic rebound has hit strong headwinds in October with consumer confidence dropping to the lowest level since the last lockdown and a near-record share of manufacturers reporting material and labour shortages.
The British economy recovered more strongly than expected until the summer, but early data for October show the rebound could be slow sharply in the last three months of the year.
The monthly consumer confidence index published by research company GfK dropped 4 points to minus 17 per cent in October. This is down 10 points from a pandemic high in July and it is the lowest score since February, when most of the country was in its third lockdown.
The reading is the net balance of respondents who are optimistic about the state of their personal finances and wider economic prospects minus those who are pessimistic
Joe Staton, client strategy director at GfK said that after a robust recovery in the first half of 2021, UK consumer confidence “has taken a turn for the worse” amid fuel and food shortages, surging inflation squeezing household budgets and climbing Covid rates.
Consumer confidence, tracked with interviews conducted in the first half of the month, has darkened across all the components of the index, with sharp deteriorations in people’s view on the general economic situation in the year ahead, on future personal financial conditions and with a falling proportion of people saying this is a good time to make major purchases.
The index is closely watched because shoppers tend to avoid spending on goods and services if they feel uncertain about their job or the economy. In the second quarter, when confidence was improving rapidly, household consumption contributed 4.1 percentage points to the 4.8 per cent economic growth, by far the largest driver of the rebound.
This declining confidence comes as the manufacturing sector also faces increasing challenges, according to a separate survey by the CBI business organisation.
Almost two-thirds of manufacturers cited availability of materials and components as a factor likely to limit output in the next quarter, the highest proportion since January 1975.
Anna Leach, CBI deputy chief economist, said that “from higher material costs to labour shortages, manufacturers continue to face a number of serious global supply challenges hampering their ability to meet strong demand.”
Manufacturers, interviewed between September 24 and October 12, also expressed heightened concerns about labour shortages affecting future output, with two in five companies worried about a lack of skilled labour, the highest share since July 1974 and nearly a third concerned about availability of other labour, a survey-record high.
Rapid manufacturing cost growth has continued to feed into price pressures according to the survey, with average domestic and export prices growing at their fastest rate since April 1980 and April 2011, respectively.
Samuel Tombs, chief UK economist at consultancy Pantheon Macroeconomics, said that with large order backlogs still to work through, “manufacturing output won’t spiral downwards.” However, he added that “it now looks highly unlikely that [manufacturing] output will recover in the foreseeable future all the way back to 2018 levels.”