Fears of a steep rise in mortgage payments and increasing job insecurity have sent UK consumer confidence tumbling to a three-month low, according to a leading survey.
In a blow to John Healey before next month’s budget, the S&P Global consumer sentiment index dropped to ۴۲.۷ in September from ۴۲.۹ in August, indicating “a notable strain on financial confidence across UK households”.
The chancellor could announce tax rises in his first budget to offset the rising cost of government borrowing, which has soared in response to the conflict in the Middle East.
S&P Global said consumers were concerned about the likelihood of an increase in interest rates by the Bank of England. More than ۵۰% of ۱,۵۰۰ respondents said they expected a rise in the cost of borrowing over the next year.
Fixed-rate mortgage costs have already jumped to multi-year highs in the UK, while the threat of artificial intelligence and caution among employers about hiring new staff sent consumer confidence in the jobs market plunging to its lowest level in three-and-a-half years.
The average two-year fixed residential mortgage rate rose to ۵.۸۸% on Monday, its highest since ۱۶ April and up from ۵.۸۴% last Friday, while the average five-year is at its highest since October ۲۰۲۳, at ۵.۹۲%, up from ۵.۸۸%, data from Moneyfacts showed.
The rise in mortgage costs is expected to add about £۱۵۰ to monthly mortgage payments, based on a typical loan of £۲۵۰,۰۰۰ over ۲۵ years, since the start of March ۲۰۲۶.
Official figures have shown that the average direct debit to cover monthly mortgage costs has risen over the past four years from about £۶۰۰ to £۹۰۰.
Maryam Baluch, an economist at S&P Global Market Intelligence, said a downbeat mood was spreading across UK households “as improved sentiment surrounding the new government is eroded by renewed worries over energy prices, the cost of living and job prospects”.
She said: “Against a backdrop of rising volatility in energy markets linked to tensions in the Middle East, households increasingly reported difficulties accessing credit, suggesting that expectations of tighter monetary conditions are beginning to feed through to borrowing conditions. Together, these factors point to cautiousness about both financial prospects and pose some downside risks to the broader economic outlook.”
Analysts believe the jobs market has proved resilient since the US attack on Iran and a steep rise in the cost of fuel and energy, but a steady decline in the number of payrolled employees over the past six months and a drop in vacancies to a five-year low have shown employers are worried about their profitability over the next year.
The British Chamber of Commerce has called for the government to give businesses extra support after a series of tax rises over the past two years, including an increase in employers national insurance payments.
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A survey by the business organisation of ۵,۰۰۰ companies in the second quarter of ۲۰۲۶ found that only ۱۷% were planning to increase investment in the coming months, a post-pandemic low.
Last week, Andy Burnham said he will need to take “difficult decisions” on the economy to ensure that it “remains on track”.
In response to the growing clamour for tax cuts to support businesses and households hit by the cost of living crisis, the Liberal Democrat leader, Ed Davey, said at his party conference that the UK should cut fuel duty to offset some of the rise in petrol and diesel prices at the pumps.
The German government on Monday announced plans for a cut in tax on fuel of about ۱۵p to take effect on ۱ October.
Healey could limit his tax rises to wealthier groups, including a rise in capital gains tax. However, analysts say he is unlikely to raise sufficient funds from discreet tax rises to pay for higher defence spending and the rise in debt costs while preserving a reserve buffer, often referred to as headroom, of at least £۲۰bn.
