Shoppers are spending again but will the Budget kill the buzz?

Consumer confidence is back – but winter could crush it

Britain’s consumers are finally feeling a little braver about spending, and that could be the spark the economy desperately needs. New BRC figures show improving confidence in personal finances, the economy and, crucially, plans to spend more in shops. That is potentially great news for the small retailers, cafés, restaurants and service businesses that depend on every pound of discretionary spending. But the recovery is fragile. With inflation back at 2.9%, winter energy bills set to rise and tomorrow's 28 October Budget looming, the Chancellor now has a choice: nurture this flicker of confidence by easing household and business costs, or snuff it out before it has a chance to turn into growth.

CONSUMER CONFIDENCE IS RISING

Despite the odds and the pressure on energy prices driving inflation up to 2.9% in July, consumers are more confident.

This matters to the UK economy, and what the Chancellor decides to announce in the budget on 28th Oct could have a big impact; either driving confidence up further or snuffing out the flame.

Consumer confidence really matters in the UK. 70% of GDP comes from household spending and that makes it more important than almost any other economic indicator, and more important than in many other countries.

New figures from Opinium for the British Retail Consortium (BRC) show some green consumers shoots:

• State of the economy: up from -36 to -28

• Personal finances: up from -12 to -9

• Retail spending plans: up from +1 to +8

• Overall spending plans: up from +13 to +15

• Savings: down slightly (showing people are increasing confident that it’s OK to spend)

Helen Dickinson, boss of the BRC says confidence is at its highest level since the lows triggered by the Iran conflict. It’s driven partly by Gen Z optimism and the end of the stifling summer heatwaves. For the Government, this is a rare bit of economic good news.

Consumers matter

The UK is one of the most consumer‑dependent economies in the developed world. When households feel better, the whole system bounces

More spending means higher retail turnover.

Higher turnover leads to growing business confidence and that means more jobs and investment

More recruitment means wages grow and that’s more money in tax for the Government and more money for public services.

Confidence is the spark that turns stagnation into momentum, which is what the economy needs and the Government is desperate to see.

Even small shifts matter. A move from -36 to -28 (a bigger minus to less of a minus) isn’t exactly a sign that we’re confident of an economic boom, but it could be a psychological turning point.

Dependent on consumer spending

Unlike Germany which has an industry‑heavy economy or France (state‑heavy), the UK economy is built on retail, hospitality and services. We’re an economy dependent on housing, personal consumption and small and micro businesses.

When consumers tighten their belts, the UK slows sharply. Our consumption goes down, the housing market stalls and small and micro businesses shut up shop. All of that has been taking its toll. If this rise in confidence means we loosen our belts and start spending a little more, the UK accelerates. Confidence indicators are watched as closely as inflation or GDP.

The fly in the ointment

The villain of the cost‑of‑living crisis, winter energy bills, is likely to surface again shortly. Just as consumers start to feel optimistic, the next price cap could knock that confidence for six.

Household energy bills across the UK are expected to climb to a three‑year high this winter, driven by the Middle East conflict and Europe’s heatwave‑induced gas demand. Cornwall Insight, the energy analysts, warns that the October price cap will rise 4%, pushing the typical annual bill to £1,729, the highest since July 2023.

Just as the BRC sees confidence beginning to rise, energy bills are about to deliver a painful reminder that we’re still dangerously exposed to global gas markets.

UK’s Achilles heel

Cornwall Insight’s analysis shows:

• gas charges rising from 7.33p to 7.90p/kWh

• electricity rising from 26.11p to 26.57p/kWh

• the VAT cut on electricity (worth ~£45 a year) wiped out immediately

• Britain’s reliance on imported gas leaves households exposed to global shocks

The analysis points out quite rightly that our energy bills are tied to events thousands of miles away. That’s the big problem: the UK can’t control its own energy prices.

As long as we’re dependent on volatile international gas, every geopolitical flare‑up becomes a domestic cost‑of‑living crisis.

The Budget

October 28th will be the acid test of the Government’s commitment to growth. If the Chancellor wants to nurture that rising confidence, he must:

Ease household pressure

Energy bills, food inflation, rent, childcare costs, are the costs that determine whether people spend or save.

Cut business costs

The BRC highlights business rates, energy costs, regulatory burdens and tax complexity as needing attention. That’s in line with what most other business groups, including Business111, are calling for. If these fall, retailers can keep prices down and households and high streets will feel the benefit.

Avoid policies that push prices up

If regulatory or tax changes raise costs for retailers, those costs will be passed straight to consumers. Retailers have no choice. They’ve been holding prices down and absorbing rising costs for months now. They’re at breaking point. More regulation and tax would kill the confidence bounce instantly. We may not be able to control our own energy costs, but we can control domestic policies.

Back the labour‑market

Confidence rises when people feel secure in their jobs. Any Budget measures that support jobs, training, or wage stability will reinforce the trend. A pro‑retail Budget is a pro‑consumer, pro‑growth Budget.

Economic outlook

If the Government can sustain this confidence uptick, the implications for the rest of Labour’s term could be significant. Confidence-driven spending could lift GDP without requiring major tax cuts or borrowing. Retail, hospitality and services hire more when demand rises so jobs, particularly starter jobs for young people, could increase.

Higher consumption means higher VAT receipts and more room for investment. A confident consumer is a calmer voter. Economic optimism buys time for structural reforms.

However, the economic outlook depends on whether the Government can stop energy bills from derailing that consumer confidence and energy bills are the single biggest threat. The UK finally has seen a flicker of optimism from consumers, but winter energy bills could snuff it out. The October price cap rise will hit struggling households, wipe out the electricity VAT cut, expose Britain’s dependence on global gas and threaten the consumer‑confidence recovery.

If confidence stabilises, Labour can frame the next two years as a shift from crisis management to renewal, but confidence is fragile. A mis‑step in the Budget, another spike in energy prices, yet higher inflation, especially in food prices, or a regulatory change that raises business costs could reverse the gains instantly. Some of that isn’t in the Government’s control, so it’s even more vital that Ministers grasp the importance of getting right the policies that are in their control.

Last chance saloon

Consumer confidence is rising and, in the UK, that matters more than almost anything else. It gives the Government a golden opportunity to ease household pressure, cut business costs, back retail and small and micro businesses, stabilise the economy and shape a more optimistic outlook.

The Budget has a lot of heavy lifting to do. If the Chancellor can protect households and cut business costs, confidence may survive the winter. If not, the UK could slide back into caution, retrenchment and stagnation. Confidence is a flame, not a fire and the 28 October Budget will determine whether it grows or goes out.