Consumer confidence in the UK has had some notable peaks and troughs over the last 10 years. This decrease has disproportionately impacted younger populations. A hugely defining moment for public sentiment happened with the post-Brexit vote era. Similarly, the large-scale personal impact of the pandemic has further supercharged how people are feeling. In 2022, that confidence was hit hard. That collapse was most evident after the deeply unpopular mini-budget presented by then-Prime Minister Liz Truss. Such a state of affairs raises important questions about the health of the UK economy today. Second, it points to the psychological underpinnings that drive consumer behavior.
The UK’s Consumer Confidence Barometer, one of four tools which GfK makes available, has been tracking consumer sentiment for almost half a century. This survey has always been the most accurate reflection of a deep-seated malaise among consumers corresponding with wider economic fear. According to a recent Survey of Consumer Expectations, older Americans—those 50-plus—are especially pessimistic about the nation’s economic prospects. This worry is leading them to retrench spending, in turn hurting GDP growth.
Younger consumers, especially those on the millennial left, are showing dangerously exuberant and optimistic sentiment about today’s economy. This optimistic vision could not be more different from the issues and calamity faced throughout this past decade. This demographic’s joy comes from a myriad of reasons. They have a different perspective when it comes to the economic headwinds, with a belief that there’s light at the end of the tunnel. Such opposing views illuminate a clearer picture of a generational chasm of consumer confidence worth exploring even deeper.
To describe that turn, the Biden administration recently popularized the phrase “Vibecession.” Yet it comes closer than any traditional economic indicator to painting a full picture of the increasing sense of economic doom. In the UK, this term is fraught with connotations. Social media dynamics, particularly a lot of doom-scrolling content, can contribute to these perceptions and make Americans feel insecure about economic stability. The algorithms that determine what content people see often promote the most emotive, attention-grabbing stories, enough to warp public perception and motivate consumer action.
Paradoxically, given these psychological obstacles, the UK has had the antidote—a high savings rate—almost reaching double digits. This latest trend reflects that consumers are starting to feel shaky about the economy. So, understandably, they’re betting on the sure thing and putting savings before spending. The government’s recent initiatives to stimulate investment, including announcements related to Heathrow Airport and a new northern train line, aim to foster a more favorable economic climate and restore confidence among consumers.
Consumer confidence was already very low and, in the fall of 2022, the shock of Liz Truss’s disastrous mini-budget was sharply felt by people in every age cohort. This event serves as a stark reminder of how political actions can reverberate through the economy, affecting public sentiment and spending behavior. The relationship between consumer confidence and the overall state of the economy has long been a point of interest for economists and policymakers.
Inflation rates in the UK are on the decline, nearing the government’s target of 2%. Due in part to measures that curb regulated price hikes, inflationary pressures hope is mounting for a 2024 resurgence in consumer spending outlook. It’s not just the UK workers that are benefitting from inflation-busting pay rises. This trend continues to point to a labor market resilience that should reinforce consumer confidence in the medium term.
The difficult task still lies ahead for policymakers to try to ensure there’s an air of confidence and optimism about the overall economic environment. They need to counteract the mood of older Britons who have thus far been knee-deep in doom and gloom. It’s essential for the government to understand the varied needs of all age groups. In doing so, they will be able to shape their strategies to best fit their goals.
If indeed such a dramatic optimism was underway, the recent trends we have seen in US consumer sentiment surveys provide fascinating parallels. Related surveys conducted in the United States show a distinct partisan effect on consumer confidence. Democrats are more optimistic about the economy than Republicans, even more so when there’s a party change at the presidential level. This remarkable phenomenon is a testament to the power of political rhetoric and leadership to shape public sentiment in extraordinary ways.
