Interactive Investor analyses Rishi Sunak's Spring Statement
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According to data analysis firm GfK “a wall of worry” has confronted consumers this month, with consumer confidence falling for the fourth month in a row. Britons currently have plenty of cause for concern. As all eyes looked to the Chancellor this week for new measures to combat the rising cost of living, inflation was revealed to have reached 6.2 percent while the Office for Budget Responsibility (OBR) warned that the UK faced the worst fall in living standards since the 1950s.
Mr Sunak’s measures have been criticised by many for not going far enough, with a controversial rise in National Insurance still going ahead and a 5p cut in fuel duty doing little to reduce prices which have soared over 30p a litre on average since the start of the year.
According to GfK’s Consumer Confidence Index, which survey’s peoples’ views of their own finances and the wider economy, outlook has fallen to similar levels seen in late 2020 when the UK was entering another lockdown due to rising Covid cases.
The index’s overall score of -31 suggests a major lack of confidence in the UK economy.
Samuel Tombs, Chief UK Economist at Pantheon Macroeconomics, said: “Note that the economy has entered a recession on four of the five past occasions when GfK’s composite index has dropped below -30.
“Households also were the gloomiest about the 12-month outlook for their personal finances since July 2008.
“Accordingly, retail sales likely will continue to trend down over the next six months, as households scrimp and prioritise spending more on services than goods now that Covid fears have abated.”
Retailers are already beginning to see the impact of customers tightening their belts with sales volumes falling -0.3 percent in February following a previous rise in January, according to latest figures from the Office for National Statistics.
Neil Birrell, Chief Investment Officer at Premier Miton Investors, commented: “After Next cut its profits and sales guidance yesterday, the UK retail sales data for February came in much worse than expected, falling month on month.
“A combination of rising prices and taxes, along with the uncertainty abounding, are clearly having an effect.
“The Chancellor didn’t provide much optimism in his Spring Statement this week and with more interest rate rises coming, the consumer is going to remain under pressure.”
Interest rates have been rising following three consecutive hikes by the Bank of England in an attempt to control inflation which is now expected to peak at 8.7 percent later this year.
The actions by the Bank typically take a long time to take effect though leaving consumers with both high inflation and high interest rates in the meantime.
With the Bank limited in short term measures the focus falls increasingly on Rishi Sunak and the Treasury to offer a lifeline to struggling businesses and consumers.
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“Introducing urgent business rates reform in this week’s Spring Statement would have been a welcome boost for retailers” explained Jacqui Baker, partner and head of retail at consultancy RSM UK, “but the Chancellor missed the opportunity, again, to rebalance the playing field and ensure retailers are paying the fair amount.”
She added that firms will also now face a “payroll headache” following the Spring Statement, with Mr Suank refusing to give into calls to delay April’s National Insurance hike.
While the Chancellor announced an increase to the threshold for National Insurance for many this will still leave them paying more with the Institute for Fiscal Studies describing the Chancellor as “giving with one hand, having previously taken away with the other.”
Chief Executive of the British Retail Consortium, Helen Dickinson warned consumers faced “a rocky road ahead”, adding “While the Chancellor’s Spring Statement offered some relief for consumers, rising inflation and next week’s rise in the energy price cap mean that real discretionary incomes are likely to fall in the coming months, as the cost of living soars.”
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