Recession warning as confidence among shoppers falls to lowest since 2008 financial crash

Confidence among shoppers has fallen to its lowest level since the 2008 financial crash as the soaring cost of living prompted a sharp drop-off in spending, new figures show.

The disastrous economic data led analysts to warn that the crisis is at risk of turning into a full blown recession with prices rising and shoppers tightening their belts.

Struggling households cut back spending on online purchases, food and fuel, as Rishi Sunak was told the public hasn’t been given the help they need.

And economists are warning that much worse is likely to come, as the impact of huge increases to energy bills and rises in tax and National Insurance have yet to hit.

Official figures released on Friday showed retail sales fell 1.4 per cent in March, faster than February’s 0.5 per cent drop. Online spending was down 6.9 per cent as the lifting of Covid restrictions saw people shift back to buying in stores.

Fuel sales tumbled 3.8 per cent as record petrol and diesel prices caused motorists to cut back on non-essential journeys.

Energy and fuel costs have pushed up the price of a host of other goods from food to clothing, and sent inflation to 6.2 per cent – well above average pay rises.

The squeeze on real incomes is now beginning to cause a crisis of confidence among shoppers, separate data showed. A closely watched consumer confidence index compiled by market research firm GfK fell to a level of -38 in April – the lowest level since 2008. The poll indicates that a further decline in spending is likely in April.

The “rapid yet predictable” fall in spending had been made more severe government decisions to cut benefits and hike taxes, said George Dibb, head of the IPPR center for economic justice.

“Rishi Sunak’s decision to not adequately support households isn’t just a crisis for people struggling to get by, it actually risks tipping the UK economy into recession,” he said.

The chancellor has been heavily criticized for failing to announce more help for people unable to keep up with rising bills and a surge in inflation.

A £150 council tax rebate and a repayable £200 reduction on energy costs have been widely seen as poorly targeted and inadequate. Energy bills for the average home are almost £1,000 a year higher than they were just over a year ago after the price cap jumped 54 per cent this month.

Millions of Britain’s poorest households have also seen their incomes cut after the government refused to increase benefit payments in line with inflation. meanwhile

Mr Dibb warned that, as the cost of living crisis starts to bite, people will look for further places to save money, depressing the wider economy. “Cutting back on shopping, meals out, holidays, and streaming subscriptions are the first to go,” he said.

James Smith, research director of the Resolution Foundation said the risk of recession had increased, and called on ministers to do much more to prevent one occurring.

Months of shrinking pay packets and worries about living costs have begun to drag on economic activity, he said.

“A fresh downturn is far from certain, but the Government should be doing all it can – and far more than it currently is – to help support those on low incomes who will be hardest hit.”

Sam Tims, economist at the New Economics Foundation, said the policy announcements so far had been nowhere near enough to deal with living cost increases. The decision to cut benefits will harm the wider economy, he said.

“It has an individual impact of more people going hungry or being unable to heat their homes but there is also an economic impact.

“If people can’t spend money in the high street, in pubs and elsewhere, consumer spending will drop and that is something that is likely to lead to a recession.”

He said he did not see the situation improving any time soon and called on the government to ensure that everyone in the UK has a living income.

Lisa Hooker, consumer markets leader at PwC, said: “We are already seeing consumers adopt coping mechanisms to deal with the squeeze in incomes, such as seeking value and trading down.”

She added: “We have also seen more resilience in spending across the older age groups, perhaps reflecting that they were less impacted through lockdown in terms of finances but also are likely to be helping out their families.”

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George Holan

George Holan is chief editor at Plainsmen Post and has articles published in many notable publications in the last decade.

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