Consumer confidence plummets as ‘reality starts to bite’

After several months of improvement, consumer confidence declined significantly in July as the cost of living crisis continues to take its toll.

Inflation fell to 7.9% earlier this week – its lowest level in more than a year – exceeding forecasts, amid a sharp drop in petrol prices. But it has yet to have an impact on consumers who are continuing to struggle.

The overall index score on GfK’s Consumer Confidence Barometer dropped six points to -30 in July, with all measures declining last month. After steadily rising for six months, overall confidence is now back at the same level it was in April.

“The recent fall in headline inflation will do little to improve the financial mood; consumers need to see falling prices and interest rates before that happens,” says Joe Staton, client strategy director at GfK. “Reality has started to bite and as people continue to struggle to make ends meet, consumers will pull back from spending.”

The biggest decline is in people’s view of the general economic situation over the coming year, which dropped eight points to -33, which Staton describes as “damning”.

Consumers’ view of their personal finances over the next 12 months is equally bleak, falling by six points to -7 in July.

Meanwhile, the major purchase index, which indicates people’s propensity to buy big ticket items, is also down seven points to -32, suggesting people are not in a position to spend large sums of cash.

“People need to see and feel an end to the cost of living crisis, and judging by the latest insight into their mood, they don’t see the end coming soon,” Staton tells Marketing Week.

“Neither will savvy marketers see an end, but they will know that keeping a calm head and investing in insight-driven strategies will help to weather the storm and protect brand equity.”

People’s view of their personal financial situation over the past 12 months dropped by five points to -20. This is the same level it was at in May and only marginally better than the -23 recorded in July 2022.

Consumers’ view of the general economic situation over the past year fell to -58, a four-point drop.

“All in all it’s bad news,” adds Staton. “People are feeling economic pain and this confidence deficit needs to be reversed before the gains this year are lost.”