Tuesday, November 19, 2024
Budget sapping consumer confidence
The paper says that a survey by S and P Global Market Intelligence showed that consumer confidence dropped this month after households said the outlook for the economy had deteriorated and the prospects for their own finances had worsened:
The consultancy said the government had failed to build on the underlying improvement in consumer sentiment seen in the months before and after the general election.
Goldman Sachs said in a separate report that the increase in employer national insurance contributions (NICs) announced in the budget, raising £20bn for the Treasury, would force employers to pass on some of the cost in lower wage increases.
Analysts at the investment bank said they believed wages growth would slow as a result.
“We expect consumer spending growth to moderate in the second half of next year as real disposable income growth falls back,” they said. “This partly reflects slowing real wage growth; we expect private sector pay increases to cool, partly because of the employer NICs increase being passed on to consumers.”
S and P Global Market Intelligence said that since a high point in July, consumers had spent the rest of the summer and autumn more buoyant about their finances over the next 12 months than in the period before the Covid pandemic.
However, the survey in November found the “ongoing pressure on household finances has resulted in squeezed spending, higher debt and lower savings”.
The consumer sentiment index – a mix of surveys tracking consumer financial wellbeing, the jobs market, household spending, savings and debt – fell from 47.3 in October to 46.9 in November, where a number below 50 indicates contraction.
Chris Williamson, the chief business economist at S&P Global Market Intelligence, said: “A key concern going forward will be the labour market. Rising incomes and busier workplaces have underpinned much of the improvement in consumer sentiment over the past two years, but job security is showing signs of waning.
“Any intensification of job worries, spurred perhaps the recent measures announced in the budget, including higher employer national insurance contributions, could result in a further loss of consumer confidence. This would likely in turn hit consumer spending and economic growth.”
The Goldman analysts said they feared mortgage rates would drift higher as the Bank of England signalled high interest rates would be in place for a longer period.
Rachel Reeves may have to wait some for the growth she needs if she is to invest higher tax revenues into public services.
