Shopper sentiment dipped by one point, falling to -19, in July, according to GfK’s latest Consumer Confidence Index. Despite a warm and sunny July, rising inflation and fears of future tax hikes in the forthcoming Autumn Budget cast a shadow on the consumer outlook.

Inflation and tax hike fears dampen consumer confidence

Shopper confidence in the state of the economy over the next 12 months fell by -1 index point to -29, falling -18 points compared to last year. Meanwhile, the consumer outlook for the health of their personal finances remained flat in July, staying at +2 on the index.

“Consumers are in a cautious wait-and-see mood,” said Neil Bellamy, Consumer Insights Director at GfK. He added that consumer caution may be due to shoppers “sensing stormy conditions ahead.”

“With speculation growing over possible tax rises in the Autumn Budget and price pressure contributing not just to higher inflation already, but also to the likelihood of worse inflation to come, the news is worrying,” Bellamy added.

A downbeat outlook

Separate polling by the British Retail Consortium (BRC) showed a similarly downbeat outlook.

BRC-Opinium data suggests consumer expectations about the state of the economy worsened to -33 in July, slipping -5 points since June. Confidence in shoppers’ personal finances over the next three months also dipped, falling to -7 in July, down -2 points compared to the month before.

“With the UK economy shrinking for the second consecutive month, it is little surprise that consumer confidence fell in July,” said Helen Dickinson, Chief Executive of the BRC. “Rising inflation, particularly for food, has put more pressure on personal finances, increasing the cost of living.”

“Despite fierce competition between retailers, retail inflation has risen steadily over the last nine months as a result of the Chancellor’s last Budget, which significantly increased employment costs. Further tax rises hitting the retail industry at the next Budget would likely fan the flames of inflation as retailers are forced to increase prices,” Dickinson added.