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Consumer confidence slumps to 22-month low with recession looming

The Bank of England faces growing pressure to raise interest rates after inflation jumped to its highest level in nearly ten years in October.

Britons’ confidence in the economy has fallen for a seventh consecutive month, adding to mounting signs of squeezed spending leading to a recession this year.

A monthly index of economic sentiment compiled by YouGov, the pollster, and the Centre for Economic and Business Research fell by 1.2 points last month to its lowest since August 2020, driven by households’ fears over the state of their finances.

Consumers’ concerns over their personal finances were the weakest on record in June as inflation rocketed to its highest rate since 1982. Petrol prices are rising and the tax burden has increased on almost all workers since April.

Josie Dent, managing economist at the economics consultancy, said that soaring prices were eating into disposable incomes and were “eroding household buying power. This is leaving many people with less money left over at the end of each month and is even pushing some to cut back on food spending, use their savings, or take on debt to make ends meet.”

The economy is expected to have recorded no growth for the past three months when official GDP figures for May are released by the Office for National Statistics today. Data is expected to show 0 per cent month-on-month growth in May after outright contractions in April and March.

High inflation, falling consumer spending and rising taxes have weighed on the economy, which is heading for the first quarterly shrinkage in GDP since the start of 2021. Estimates from the CEBR point to a recession this year as second and third-quarter growth will turn negative.

A separate measure of household confidence from Bank of America fell by a point last month and is consistent with recessionary levels. Surveyed consumers said they expected unemployment to rise from record lows, but their medium-term inflation expectations fell back from record highs reported this year.

“The Bank of England can take some comfort that people do not seem to believe on average that the additional large surge in inflation this year will persist in the medium term,” Robert Wood, an economist at Bank of America, said.

The soaring cost of living has become a key battleground for prospective Conservative party leaders, with almost all candidates vowing to cut taxes on businesses and consumers. There is mounting pressure for a new prime minister to cut fuel duties, temporarily suspend VAT and cancel a planned rise in corporation tax next year.

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Consumer confidence slumps to 22-month low with recession looming