Lower interest rates not enough to rally consumer confidence

After a steady climb throughout the year so far, consumer confidence dipped in November amid warnings it could continue to fall into 2025.

Overall confidence fell from 47.3 in October to 46.9 in November, according to the S&P Global UK Consumer Sentiment Index (CSI) survey. The neutral mark is 50.

Chief business economist at S&P, Chris Williamson, said that “ongoing pressure on household finances has resulted in squeezed spending, higher debt and lower savings”.

In theory, as the cost of borrowing – and therefore mortgages and other loans – falls, borrowing activity should rise and people should feel more financially stable.

But while Williamson said lower interest rates should have a knock-on positive impact on confidence, “the fact that confidence fell in November despite the Bank of England cutting interest rates suggests lower borrowing costs alone may be insufficient to turn the tide and lift sentiment.”

The Bank of England cut interest rates by 25 basis points at the start of November, although it signalled that it would take a “gradual” approach to further rate cuts as the impact of the Budget filters through the economy. 

It’s possible that job and income concerns, as well as the general perception of the economy, may cast a shadow over growth at a national level.

Employment worries at the fore

Sentiment on the labour market reached a four-month low in November.

While the budget did raise the minimum wage, it also increased the amount of tax employers have to pay on their staff’s wages, which many businesses have warned will force them to reduce their headcount.

Williamson warned that the labour market may come under pressure in the coming months, with job security “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,” Williamson said.

In a letter coordinated by The British Retail Consortium (BRC), retail bosses warned the Government that job losses were “inevitable” and higher prices a “certainty” in the wake of the budget.

While recruiters had expected a better labour market in 2025, this was dependent on a more favourable business climate and higher business confidence.

Hopefully Britain’s businesses can stomach the higher costs they have been handed.