Consumer confidence in the UK has fallen at its fastest rate since the 2016 Brexit vote, outside the Covid pandemic, as soaring fuel prices, rising energy bills and the economic fallout from the war in the Middle East squeeze household budgets.

The long-running GfK consumer confidence index dropped by 11 points in October to -24, the data company said. The last time it fell so far in a single month was July 2016, immediately after the shock Leave result in the EU referendum.

The slump lands less than a week before Chancellor John Healey delivers his first budget on Wednesday, and is a fresh warning for Prime Minister Andy Burnham’s government that the public mood has soured sharply since the summer.

From ‘Burnham bounce’ to bust

In July, GfK reported a “Burnham bounce” as the new prime minister’s arrival, a strong World Cup run by England’s men’s team and sunny weather lifted spirits. That optimism has now disappeared.

Neil Bellamy, consumer insights director at GfK, said: “Relentless cost-of-living pressures, against an international backdrop of unresolved regional conflicts that are themselves contributing to domestic inflation now at 3.5%, appear to have swept aside the nascent optimism we saw following the appointment of a new UK prime minister this summer.”

The index has been tracked by the government and the Bank of England since the early 1970s as an early warning sign for the economy. Its largest fall on record was 25 points in March 2020, just after the first Covid lockdown began.

Bracing for a hard winter

People surveyed in October were gloomier about both their own finances and the wider economy over the past year and the next twelve months.

The major purchase index, which measures whether people think it is a good time to buy big items such as furniture, cars or electrical goods, fell by 14 points to -22. Analysts said this suggested households were preparing to cut back on spending over the winter to make room for higher energy bills.

That is bad news for retailers heading into the crucial Christmas period. On Thursday, Sainsbury’s warned of a challenging run-up to Christmas as shoppers feel the squeeze.

Petrol and diesel prices have surged to near-record levels because of the conflict in the Middle East, and analysts have warned that energy bills for a typical household could reach £2,000 a year from January. Separate figures suggest Britain will face some of the highest energy costs in Europe this winter.

Analysis by the Trades Union Congress found that UK households have paid almost £14,000 on average in extra costs for mortgages, loans, energy and water bills over the past five years.

A double blow for the chancellor

The confidence figures follow a bruising week for the Treasury. Official data on Wednesday showed that inflation rose by more than expected to 3.5% in September, driven by fuel prices, while government borrowing came in at a worse-than-forecast £24.5bn for the month.

Mr Healey has promised to use the budget to announce “breathing space” measures to ease pressure on households. But he has also warned that the government has limited room to act, because the Middle East conflict has pushed the UK’s borrowing costs to their highest level in decades.

Economists say the chancellor faces an almost impossible balancing act: spending more to help families with bills risks unsettling the bond markets that fund government borrowing, while doing too little could deepen the slowdown in spending that the GfK survey points to.

Manufacturers want relief too

Business groups are also lobbying hard. Figures from the CBI on Friday showed that investment intentions among manufacturers were subdued in the three months to October, with cost pressures remaining high, although output is expected to stabilise over the next three months.

Cameron Martin, senior economist at the CBI, said: “If the government wants to meaningfully tackle the cost of living, it must give manufacturers the breathing space to invest and drive the productivity growth needed to sustain rising real wages.”

“Next week’s budget must deliver this by cutting business electricity costs, reducing labour costs and reforming business rates to support rather than hinder investment and growth,” he added.

What it means for Scotland

Scottish households are feeling the same pressures, with higher heating needs and longer winters making energy costs a particular worry in rural and island communities. Many of the tax and benefit decisions in Wednesday’s budget will apply across the UK, while the Scottish Government will learn how much extra funding it receives to spend on devolved services such as health and local councils.

Retailers at Scotland’s big shopping centres, including Fort Kinnaird on the edge of Edinburgh, will be watching closely to see whether the chancellor does enough to persuade nervous shoppers to keep spending through the festive season.

For now, the message from the survey is stark: after a brief summer of optimism, Britain’s consumers are battening down the hatches.