The most recent monthly figures from the UK economy present a contradictory tale of surprising resilience partially offset by consumer reluctance. While many are proclaiming a turn toward economic backwardness and recession, numbers just do not show a clear turnaround in that direction. Consumer sentiment around the country has been mixed, to say the least. Older generations are especially loathe to invest, adding to the difficulty. This reluctance takes a big bite out of the nation’s GDP. A more meaningful economic recovery is sure to be rooted in rebuilding consumer confidence.
Recent economic indicators have indicated inflationary forces continue to be quite powerful. Latest pay rises for UK workers are now above inflation. This situation presents a paradox: even as wage growth offers some financial relief, the overall consumer spending remains tepid, especially among older Britons. The hesitance of this demographic to spend money, whether through buying homes or entering the car market, is probably keeping a lid on our economic expansion.
The UK government is raising the stakes to attract high levels of investment. They have blown their carbon budgets by expanding Heathrow Airport and starting up a new train line in the north. All of these projects are intended to rebuild our infrastructure and create new economic opportunities, especially in areas that have traditionally been left behind. Yet during implementation, the measures effectiveness is yet to be seen.
With inflation in check and employment strong, consumer sentiment will be the leading factor driving economic dynamics. GfK’s Consumer Confidence Barometer has been measuring consumer confidence for half a century. After 14 months of fluctuating levels of optimism, most recently reflecting an overall drop in confidence across age brackets. It would take only one Liz Truss mini-budget in 2022 to rattle that economic optimism back to its foundations. Consequently, it deeply affected Americans’ long-term financial expectations. Most alarmingly, a dramatic decline in economic expectations has been recorded across generations, with pensioners leading the way. First, young adults are more optimistic about future economic conditions. This attitude reflects a growing generational divide in how younger and older Americans see — and experience — our economy.
The record savings rate across the UK—around 8%—is a testament to the wariness that is still rife among consumers, with many erring on the side of caution. Now, while that might sound like a sensible proposal in fiscally prudent financial terms, it signals a real willingness to not spend. Experts are pointing to the overall tone and algorithms of social media as things that can wreck consumer confidence. Negative sentiments can quickly leak from one platform to another, exacerbating the problem.
Support the federal government’s efforts to aggressively fight high inflation. They’re doing everything they can to get these rates down to the Administration’s goal of 2%. Efforts to limit regulated price rises for essential services such as rail and water aim to alleviate some financial burdens on households. These initiatives are important because they try to repair the broken windows that have shattered consumer confidence in the economy.
Additionally, the housing market could soon see brighter days ahead due to new, innovative competition in the form of mortgage lenders. A looming mortgage price war has the potential to jumpstart the beleaguered housing market after months of silence and confusion that followed the recent budgetary pronouncements. This new development will help to create new homeowners while creating new economic development opportunities that follow homeownership.